Unity Software Rises on Q3 Earnings Beat

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Quick Read

Unity Software delivered a blowout third quarter on Wednesday morning, crushing both revenue and earnings expectations in a dramatic turnaround from the company’s disastrous Q1 performance earlier this year. Shares of U are trading near $36 at the time of filing, essentially in line with analyst price targets despite a recovery that has lifted shares 141% from their 52-week low of $15.33. Some investors get rich while others struggle because they never learned there are two completely different strategies to building wealth. Don’t make the same mistake, learn about both here.

Unity Software(NYSE: U) delivered a blowout third quarter on Wednesday morning, crushing both revenue and earnings expectations in a dramatic turnaround from the company’s disastrous Q1 performance earlier this year. The stock was trading near $36 at the time of filing, essentially in line with analyst price targets despite a recovery that has lifted shares 141% from their 52-week low of $15.33.

AI Momentum Powers a Decisive Beat

The headline numbers tell a compelling story of operational recovery. Unity posted adjusted earnings of $0.20 per share against estimates for a $0.24 loss, a swing of $0.44 that reflects genuine profitability improvement rather than accounting adjustments. Revenue of $471 million beat expectations by 2.3%, driven primarily by strength in the Grow Solutions segment, which generated $318 million and grew 6% year over year. CEO leadership attributed the outperformance directly to Unity Vector AI adoption and continued momentum in the Create Solutions business.

What matters most here is the margin story. Adjusted EBITDA reached $109 million, representing a 23% margin. That’s meaningful profitability on an operating basis, even if the company remains unprofitable under GAAP standards (net income came in at negative $127 million). Operating cash flow jumped to $155 million from $122 million in the year-ago quarter, and free cash flow landed at $151 million. I’d keep an eye on that cash generation. It signals the company is moving from financial stress toward sustainable operations.

The Create Solutions Slowdown Worth Watching

Not everything in the report moved in the right direction. Create Solutions, the company’s core creative tools business, grew only 3% year over year to $152 million. That’s a meaningful deceleration compared to the 6% growth in Grow Solutions, and it raises questions about whether the company’s flagship product line is losing momentum to competitors or simply maturing.

Management guided for high-single-digit growth in Create for Q4 and mid-single-digit sequential growth in Grow. The forward guidance itself is conservative. Revenue guidance of $480 million to $490 million implies roughly 2-4% sequential growth, a slowdown from Q3’s performance. If you’re tracking the company’s turnaround narrative, this is the number that will matter most next quarter.

Story Continues

Key Figures

Adjusted EPS: $0.20 (vs. -$0.24 estimate); swing of $0.44
Revenue: $471M (vs. $460.45M estimate); +5% year over year
Adjusted EBITDA: $109M (23% margin)
Operating Cash Flow: $155M (vs. $122M year ago); +27% year over year
Free Cash Flow: $151M
Gross Profit: $350M (74% margin)
Cash on Hand: $1.91B
Grow Solutions Revenue: $318M (+6% YoY)
Create Solutions Revenue: $152M (+3% YoY)

The cash flow improvement is the real takeaway. Unity has moved from quarterly cash burn to genuine positive generation, which changes the fundamental risk profile of the business. The 74% gross margin underscores healthy unit economics even as the company scales profitability.

Context: A Turnaround With Cracks

This quarter’s beat needs historical framing. In Q1 2025, Unity missed earnings estimates by 212%, posting a loss of $0.19 against expectations for a $0.17 profit. That miss triggered a sharp selloff and forced management to rebuild confidence. Q2 2025 showed recovery with a $0.18 beat, but Q3’s $0.20 beat is the first clear evidence that the turnaround is gaining traction rather than stalling.

The company remains unprofitable on an annual basis with trailing-twelve-month earnings of negative $1.06 per share. Valuation remains elevated at 8.5 times sales for a business with declining annual revenue growth (down 1.9% on a trailing basis). Analyst consensus sits at $36.88, suggesting the market views current levels as fairly valued rather than a screaming bargain.

One signal worth noting: insider selling accelerated in August and September when the stock traded between $38 and $46. Directors including Tomer Bar-Zeev and David Helgason sold millions of shares after the Q2 beat. That level of insider disposition after positive results can signal skepticism about sustaining momentum, though tax-related exercises also account for some of that activity.

What Comes Next

The earnings call will matter primarily for tone and color on Create Solutions momentum. If management can articulate a clear path to re-accelerating that business, the stock could find support. If they sound defensive about competitive pressures in creative tools, expect questions about whether the Grow Solutions strength can offset any Create slowdown. Watch also for any commentary on the macroeconomic environment and advertising market conditions, which carry outsized importance for a company with significant exposure to ad-dependent revenue streams.

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