Unity Software (U Quick QuoteU - Free Report) reported first-quarter 2026 non-GAAP earnings per share (EPS) of 23 cents compared with 24 cents in the year-ago quarter. The figure missed the Zacks Consensus Estimate by 4.17%.

On a GAAP basis, the company posted a net loss per share of 80 cents compared with a loss of 19 cents in the year-ago quarter, weighed down by $279 million of impairment charges related to the sunset of the ironSource Ads Network and the planned divestiture of the Supersonic publishing business.

Net revenues of $508.24 million rose 17% year over year and comfortably exceeded the company's guided range of $480-$490 million. The figure beat the consensus mark by 1.53%.

Total Strategic Revenue, which excludes the ironSource Ads Network and Supersonic, grew 35% year over year to $432 million. The revenue growth was driven by the Unity Ad Network, propelled by Unity Vector, with additional contribution from higher subscription revenues in Create.

Q1 Details of Unity Software

Unity Software reported Create Solutions revenues of $157 million, up 4% year over year. The increase was driven by higher subscription revenues, partially offset by declines in cloud and hosting services revenues tied to the company's portfolio reset in 2025. Strategic Create Revenue (which excludes non-strategic items) was $153.7 million, up 15% year over year.

Grow Solutions revenues were $352 million, up 24% year over year. The growth was driven by Unity Vector within the Unity Ad Network, partially offset by declines in the IronSource Ad Network. Strategic Grow Revenue was $278.7 million, up 49% year over year, almost twice the rate of total Grow growth — reflecting Vector's continuing momentum. Per the March 26, 2026, preliminary release, Unity Vector increased 15% sequentially in the first quarter, marking its fourth consecutive quarter of mid-teens sequential growth.

Non-Strategic Revenue, consisting primarily of the ironSource Ads Network and Supersonic, was $75.8 million, down 34% year over year.

Operating Details of Unity

In the first quarter, non-GAAP gross profit increased 16.7% year over year to $419.1 million. Unity's adjusted gross margin of 82% was flat year over year.

Research & development expenses on an adjusted basis grew 8.7% year over year to $152.1 million. Adjusted R&D, as a percentage of revenues, contracted 200 basis points to 30%.

Sales and marketing expenses on an adjusted basis declined 2.3% year over year to $90.9 million. Adjusted S&M, as a percentage of revenues, contracted 300 basis points to 18%.

General & administrative expenses on an adjusted basis decreased 10.3% year over year to $37.9 million. Adjusted G&A, as a percentage of revenues, contracted 300 basis points to 7%.

Unity Software reported adjusted EBITDA of $138 million, up 64.7% year over year and well above the prior guidance of $105-$110 million. The company's adjusted EBITDA margin of 27% improved 800 basis points compared with the prior year, driven by higher revenues and continued cost control.

On a GAAP basis, the net loss for the quarter was $347 million, including the $279 million of impairment charges related to the ironSource Ads Network sunset and the planned Supersonic divestiture, compared with a net loss of $78 million in the year-ago quarter.

Unity Software's Balance Sheet & Cash Flow

As of March 31, 2026, Unity had cash, cash equivalents and restricted cash of $2.15 billion compared with $2.06 billion as of Dec. 31, 2025. The increase was primarily driven by operations.

Operating cash flow was $71 million in the reported quarter, up from $13 million reported in the year-ago quarter. Free cash flow during the quarter was $66 million compared with $7 million in the prior-year quarter. The current portion of convertible notes was $556.8 million as of March 31, 2026.

Significant Q1 Developments

Alongside its first-quarter results, Unity Software announced the sunset of the ironSource Ads Network, effective April 30, 2026, and disclosed that it had engaged a financial advisor to assist with the divestiture of its Supersonic game publishing business. Management stated that, once completed, these actions are expected to drive faster revenue growth and higher adjusted EBITDA margins. The company also reiterated its expectation to become GAAP profitable by the fourth quarter of 2026.

Unity Software's Guidance for Q2 2026

For the second quarter of 2026, Unity Software anticipates total revenues between $505 million and $515 million. Strategic Revenue is expected in the range of $455-$465 million, implying a rise of 29-32% year over year. Within that, Strategic Grow Revenue is expected between $302 million and $306 million, suggesting an increase of 50-52% year over year, and Strategic Create Revenue is guided in the range of $154-$158 million, indicating a rise of 11-14% year over year (excluding the impact of a $12 million one-time revenue item in the second quarter of 2025).

Adjusted EBITDA is expected in the range of $130-$135 million, indicating year-over-year growth of 44-49%.

Unity’s Zacks Rank & Stocks to Consider

Unity currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer and Technology sector include Analog Devices (ADI Quick QuoteADI - Free Report) , Applied Materials (AMAT Quick QuoteAMAT - Free Report) and Audioeye (AEYE Quick QuoteAEYE - Free Report) , each currently carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Analog Devices have gained 53.3% in the year-to-date period. Analog Devices is set to report the second quarter of fiscal 2026 results on May 20.

Applied Materials shares have gained 66.8% in the year-to-date period. Applied Materials is scheduled to report its second-quarter 2026 results on May 14.

Audioeye shares have lost 23.3% in the year-to-date period. Audioeye is set to report its first-quarter 2026 results on May 13.