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U's Q4 Earnings & Revenues Surpass Estimates, Both Increase Y/Y
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Key Takeaways
Unity Software posted Q4 EPS of 24 cents on 10% revenue growth to $503.09M, beating estimates.
U saw 11% Grow revenue growth as Vector drove gains, while Create rose 8% on subscriptions.
Unity Software generated $404M free cash flow in 2025, up 41%, with 99% EBITDA conversion.
Unity Software (U - Free Report) reported fourth quarter 2025 non-GAAP earnings per share (EPS) of 24 cents compared to a loss of 30 cents in the year-ago quarter and beat the Zacks Consensus Estimate by 20%.
The company's net revenues of $503.09 million rose 10% year over year and beat the consensus mark by 2.21%. The revenue increase was driven by strong performance across Grow Solutions and Create Solutions.
Unity Software Inc. Price, Consensus and EPS Surprise
Unity reported Create Solutions revenues of $165 million, up 8% year over year. Excluding $10 million in non-strategic revenue from the fourth quarter 2024, the Create business grew 16% year over year, driven by strong growth in subscription revenue.
Grow Solutions’ revenues were $338 million, up 11% year over year. Unity Vector represented 56% of total Grow Solutions revenues in the fourth quarter and experienced its third consecutive quarter of mid-teens sequential revenue growth. The IronSource Ad Network represented 11% of total Grow Solutions revenues in the fourth quarter, declining $7 million sequentially.
Operating Details of Unity
In the fourth quarter, non-GAAP gross profit increased 8.9% year over year, reaching $415 million. Unity's adjusted gross margin of 82% declined 100 basis points on a year-over-year basis.
Research & development expenses grew 7.9% on a year-over-year basis to $143.8 million. Research & development, as a percentage of revenues, contracted 100 basis points to 28%.
Sales and marketing expenses rose 0.7% year over year to $103.8 million. Sales and marketing expenses, as a percentage of revenues, contracted 200 basis points to 21%.
General & administrative expenses increased 10.2% year over year, reaching $42.6 million on a non-GAAP basis in the reported quarter. General and administrative expenses, as a percentage of revenues, remained flat at 8%.
Unity reported an adjusted EBITDA of $125 million, up 17.7% year over year. The company's adjusted EBITDA margin of 25% improved 200 basis points compared to the prior year.
Unity's Balance Sheet & Cash Flow
As of Dec. 31, 2025, Unity had cash, cash equivalents and restricted cash of $2.06 billion compared with $1.91 billion as of Sept. 30, 2025.
Operating cash flow was $121 million in the reported quarter, up from $112 million reported in the year-ago quarter. Free cash flow during the quarter was $119 million compared with $106 million in the prior-year quarter, with a free cash flow margin of 24%. For the year 2025, Unity generated $404 million in free cash flow, representing 41% growth year over year and converting 99% of adjusted EBITDA to free cash flow.
During 2025, Unity successfully refinanced $690 million of its 2026 convertible notes, extending maturities to 2030. The current portion of convertible notes stood at $556.5 million as of Dec. 31, 2025.
Unity's Guidance for First Quarter 2026
For the first quarter of 2026, Unity anticipates revenues between $480-$490 million. In Grow, the company expects revenue to be flat sequentially, with Vector expected to grow 10% sequentially. In Create, the company expects double-digit year-over-year revenue growth, excluding the impact of non-strategic revenues.
Non-GAAP adjusted EBITDA is expected in the range of $105-$110 million, representing adjusted EBITDA margin expansion of 300 basis points year over year.
Unity’s Zacks Rank & Stocks to Consider
Currently, Unity Software carries a Zacks Rank #3 (Hold).
MKS shares have jumped 149.4% in the past 12-month period. MKSI is set to report its fourth-quarter 2025 results on Feb. 17, 2026. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Analog Devices' shares have returned 61% in the past 12-month period. ADI currently carries a Zacks Rank #2 (Buy). The company is scheduled to release first-quarter 2026 results on Feb. 18, 2026.
Applied Materials shares have returned 84.8% in the past 12-month period. AMAT is scheduled to release its first-quarter 2026 results on Feb. 12, 2026. Applied Materials currently carries a Zacks Rank #2.
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U's Q4 Earnings & Revenues Surpass Estimates, Both Increase Y/Y
Key Takeaways
Unity Software (U - Free Report) reported fourth quarter 2025 non-GAAP earnings per share (EPS) of 24 cents compared to a loss of 30 cents in the year-ago quarter and beat the Zacks Consensus Estimate by 20%.
The company's net revenues of $503.09 million rose 10% year over year and beat the consensus mark by 2.21%. The revenue increase was driven by strong performance across Grow Solutions and Create Solutions.
Unity Software Inc. Price, Consensus and EPS Surprise
Unity Software Inc. price-consensus-eps-surprise-chart | Unity Software Inc. Quote
Q4 Details of Unity
Unity reported Create Solutions revenues of $165 million, up 8% year over year. Excluding $10 million in non-strategic revenue from the fourth quarter 2024, the Create business grew 16% year over year, driven by strong growth in subscription revenue.
Grow Solutions’ revenues were $338 million, up 11% year over year. Unity Vector represented 56% of total Grow Solutions revenues in the fourth quarter and experienced its third consecutive quarter of mid-teens sequential revenue growth. The IronSource Ad Network represented 11% of total Grow Solutions revenues in the fourth quarter, declining $7 million sequentially.
Operating Details of Unity
In the fourth quarter, non-GAAP gross profit increased 8.9% year over year, reaching $415 million. Unity's adjusted gross margin of 82% declined 100 basis points on a year-over-year basis.
Research & development expenses grew 7.9% on a year-over-year basis to $143.8 million. Research & development, as a percentage of revenues, contracted 100 basis points to 28%.
Sales and marketing expenses rose 0.7% year over year to $103.8 million. Sales and marketing expenses, as a percentage of revenues, contracted 200 basis points to 21%.
General & administrative expenses increased 10.2% year over year, reaching $42.6 million on a non-GAAP basis in the reported quarter. General and administrative expenses, as a percentage of revenues, remained flat at 8%.
Unity reported an adjusted EBITDA of $125 million, up 17.7% year over year. The company's adjusted EBITDA margin of 25% improved 200 basis points compared to the prior year.
Unity's Balance Sheet & Cash Flow
As of Dec. 31, 2025, Unity had cash, cash equivalents and restricted cash of $2.06 billion compared with $1.91 billion as of Sept. 30, 2025.
Operating cash flow was $121 million in the reported quarter, up from $112 million reported in the year-ago quarter. Free cash flow during the quarter was $119 million compared with $106 million in the prior-year quarter, with a free cash flow margin of 24%. For the year 2025, Unity generated $404 million in free cash flow, representing 41% growth year over year and converting 99% of adjusted EBITDA to free cash flow.
During 2025, Unity successfully refinanced $690 million of its 2026 convertible notes, extending maturities to 2030. The current portion of convertible notes stood at $556.5 million as of Dec. 31, 2025.
Unity's Guidance for First Quarter 2026
For the first quarter of 2026, Unity anticipates revenues between $480-$490 million. In Grow, the company expects revenue to be flat sequentially, with Vector expected to grow 10% sequentially. In Create, the company expects double-digit year-over-year revenue growth, excluding the impact of non-strategic revenues.
Non-GAAP adjusted EBITDA is expected in the range of $105-$110 million, representing adjusted EBITDA margin expansion of 300 basis points year over year.
Unity’s Zacks Rank & Stocks to Consider
Currently, Unity Software carries a Zacks Rank #3 (Hold).
Analog Devices (ADI - Free Report) , Applied Materials (AMAT - Free Report) , and MKS Inc. (MKSI - Free Report) are some better-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector.
MKS shares have jumped 149.4% in the past 12-month period. MKSI is set to report its fourth-quarter 2025 results on Feb. 17, 2026. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Analog Devices' shares have returned 61% in the past 12-month period. ADI currently carries a Zacks Rank #2 (Buy). The company is scheduled to release first-quarter 2026 results on Feb. 18, 2026.
Applied Materials shares have returned 84.8% in the past 12-month period. AMAT is scheduled to release its first-quarter 2026 results on Feb. 12, 2026. Applied Materials currently carries a Zacks Rank #2.