Release Date: May 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Unity Software Inc (U, Financial) exceeded the high end of its guidance for revenue by 5% and adjusted EBITDA by 29% in the first quarter.
- The migration of the Unity ad network to the new AI platform, Unity Vector, was completed ahead of schedule, providing a 15% to 20% lift in installs and in-app purchases.
- Unity 6, the latest version of the Unity engine, has seen strong adoption with 43% of active users already upgraded, contributing to double-digit year-over-year growth in subscription revenues.
- The company has expanded its platform reach with Unity 6.1, supporting new platforms like Nintendo Switch 2 and Meta Quest, enhancing its position in AR and VR gaming.
- Unity Software Inc (U) continues to see strong demand beyond gaming, with new customers like Philips and Siemens using Unity for various industry applications, contributing to nine straight quarters of sequential revenue growth.
Negative Points
- Grow revenue in the first quarter was down 4% year over year, despite the rollout of Unity Vector.
- Create revenue decreased by 8% year over year due to a transition away from low-margin professional services.
- The full financial impact of the Vector-driven improvements is not expected to be visible until later quarters.
- R&D costs have increased by $10 million due to investments in Unity Vector, impacting short-term profitability.
- The company is facing internal competition between its ad products, which may lead to shifts in revenue allocation.
Q & A Highlights
Q: On the Vector rollout, are customers responding to the 15% to 20% lift in installs and in-app purchases by increasing their spend? Are they shifting spend from legacy ad products to Vector-enabled products?
A: Matthew Bromberg, CEO: The performance of Vector is very positive, exceeding expectations and driving returns for advertisers, which leads to increased spending. Customers are moving budgets around, but the key is that it's not capped, and we're seeing broad growth across the segment.
Q: Regarding subscription revenue growth, is it driven by higher pricing on Unity 6 or subscriber growth?
A: Matthew Bromberg, CEO: The impacts of significant price increases will be seen in the back half of the year. Current growth is due to both core business growth and effects of older pricing increases.
Q: Can you speak to the trajectory of improvements to the Vector model expected in the back half of the year?
A: Matthew Bromberg, CEO: We're ahead of schedule with Vector, seeing measurable increases in scale and quality. The business is iterative, with models learning and adapting over time. We're focused on modernizing the entire advertising business.
Q: Have you seen any macroeconomic impacts on your business, and what should we keep in mind for the back half of '25?
A: Matthew Bromberg, CEO: We haven't seen noticeable impacts from macro factors. Gaming is historically insulated from economic moves, and our advertisers are focused on return on ad spend, not sentiment.
Q: What are the big milestones for Vector for the rest of the year, and how do you see margin efficiency improving?
A: Matthew Bromberg, CEO: We're at the beginning with Vector, focusing on leveraging platform advantages. Jarrod Yahes, CFO: We aim to resource the business for growth, particularly in ads, while maintaining margin efficiency through automation and prudent cost management.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
