Key Points
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Unity reported its first GAAP-profit quarter since its IPO, earning $122 million in net income on $597 million in strategic revenue. Adjusted EBITDA rose 134% year over year to $257 million, with a 41% margin.
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Advertising platform Vector drove growth:revenue jumped 126% year over year and 40% sequentially, while Strategic Grow revenue rose 90%. Unity forecast fourth-quarter strategic revenue of $683 million to $691 million.
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Unity said daily active users have increased 25% since it opened its authoring platform to coding agents, and plans to launch its collaborative creation platform Unity Spark in 2027. It also reported $220 million in free cash flow and $2.65 billion in cash.
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Unity Software (NYSE:U) reported its first quarter of GAAP profitability since its initial public offering, as rapid growth in its Vector advertising business helped drive a 59% increase in third-quarter strategic revenue.
The company recorded $122 million in net income for the third quarter of 2026, a 20% net margin. Strategic revenue rose to $597 million, while adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, increased 134% year over year to $257 million.
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Unity forecast further growth in the fourth quarter, projecting strategic revenue of $683 million to $691 million, or 65% to 67% above the year-earlier period. It expects adjusted EBITDA of $290 million to $295 million, representing a 42% margin.
Vector Drives Advertising Growth
Revenue from Unity Vector, the company's advertising platform, rose 126% year over year and 40% sequentially, double the 20% quarterly growth Unity had previously forecast. Strategic Grow revenue, which includes Vector, climbed 90% to $432 million and accounted for 69% of total revenue.
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CEO Matt Bromberg attributed Vector's growth primarily to a greater volume of installs and higher player values, rather than changes in the company's take rate. He said improvements in advertising models, customer-facing products and data were helping advertisers reach players more effectively.
"Every quarter is not going to be a 40% quarter, but we're very confident about the healthy levels of growth going forward," Bromberg said during the question-and-answer session.
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CFO Jarrod Yahes said Vector's advertiser accounts increased 27% from the second quarter. He added that 90% of the growth Unity experienced in the quarter came from existing advertisers, while newly onboarded customers had only begun to spend.
Yahes described the third-quarter outperformance as an unforeseen step change in growth and said Unity's guidance approach had not changed. For the fourth quarter, the company's forecast assumes Vector will grow 21% to 23% sequentially and Strategic Grow revenue will rise 105% to 107% year over year.
Create Business and AI Tools
Strategic Create revenue increased 11% to $165 million, supported by higher average revenue per user and strength in China. Unity expects Create revenue growth of 4% to 6% in the fourth quarter and 9% for the full year. Yahes said the company expects similar annual growth levels going forward, primarily from higher average revenue per user.
Bromberg said Unity's overall daily active users have risen 25% since early August, when the company opened its authoring platform to coding agents. He argued that easier game creation could bring more developers and games onto the platform, increasing demand for game discovery and advertising.
Unity also plans to put its browser-based collaborative creation platform, Unity Spark, into closed beta this year, with a full launch in 2027. The product is part of a nonexclusive partnership with Google and is intended to help users create games without prior coding experience.
Unity has not announced Spark pricing. Yahes said the planned model includes free and paid subscriptions, consumption-based revenue and advertising. He also pointed to potential revenue from Unity Asset Store content used in the creation process.
Margins and Cash Flow
Unity's third-quarter adjusted EBITDA margin reached 41%, up 18 percentage points from a year earlier. Yahes credited operating leverage and expense discipline, including lower adjusted sales and marketing costs following the sale of Supersonic.
Free cash flow was $220 million, and Unity ended the quarter with $2.65 billion in cash. Yahes said the company expects to repay convertible debt due Nov. 15 using cash on its balance sheet.
For modeling purposes, Yahes said Unity expects amortization expense to decline to $50 million in the fourth quarter from $77 million in the third quarter, and to $15 million per quarter in 2027. The company also expects quarterly stock-based compensation of $75 million and an effective tax rate of 5% to 10% next year.
About Unity Software (NYSE:U)
Unity Software develops a platform and tools for creating and operating interactive, real-time 2D and 3D content. Its Unity Editor and engine are used by developers to build games and other digital experiences for mobile devices, computers, consoles, and extended-reality platforms.
The company also provides services that support the delivery and growth of interactive applications, including tools for collaboration, analytics, advertising, and in-app monetization. Unity's products serve customers across industries such as gaming, entertainment, automotive, and architecture.
Founded in 2004, Unity initially focused on making game development more accessible to creators.
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The article " What Unity Software (U) Said on Its Q3 Earnings Call " was originally published by MarketBeat.
