Unity Software Inc. U centered its second-quarter 2026 earnings call on accelerating Vector artificial intelligence (AI) performance, tighter links between Create and Grow, and a more profitable operating model. Management also raised near-term profitability expectations while simplifying the portfolio.
Revenues of $546.5 million topped the Zacks Consensus Estimate of $511.8 million, while adjusted earnings of $0.28 per share exceeded the $0.24 consensus estimate. Strategic revenues increased 38% year over year.
U Sees Vector AI Growth Accelerate
President and chief executive officer Matt Bromberg said Vector grew 23% sequentially in the second quarter, nearly twice management’s prior expectation of 12% to 13%. The product also moved above a $1 billion annual run rate, two quarters earlier than expected.
Strategic Grow revenues reached $329 million, up 63% year over year. Bromberg attributed the acceleration to product enhancements, better data and model improvements that are raising advertising returns for customers.
For the third quarter, chief financial officer Jarrod Yahes said Unity expects Vector to grow 19% to 21% sequentially. Strategic Grow revenues are projected at $380 million to $385 million, representing 68% to 70% year-over-year growth.
Unity Links Create and Grow More Tightly
Bromberg said Unity increasingly views Create and Grow as parts of one platform rather than separate businesses. More game creation drives platform usage, while more games increase the need for discovery and advertising.
Unity 7 is central to that strategy. Bromberg said the release will let developers and coding agents work together across development while automatically configuring services including Vector, commerce and live operations.
The Unity 7 beta is scheduled for the fourth quarter of 2026, with a full release planned for the first quarter of 2027. Bromberg also highlighted a multiyear partnership supporting Netflix’s multiplatform games ecosystem.
U Raises the Margin Bar
Yahes said adjusted EBITDA was $160 million in the second quarter, with a 29% margin, as revenue growth and cost discipline produced operating leverage. Adjusted EBITDA increased 77% year over year.
Third-quarter adjusted EBITDA is expected at $185 million to $190 million, implying a 33% margin. Yahes said that would mark a sixth consecutive quarter of adjusted EBITDA margin expansion.
Unity also pulled forward its target for GAAP net income profitability to the third quarter of 2026 from the fourth quarter. Yahes tied the improvement to operating leverage and lower costs following portfolio actions.
Unity Sharpens Its Portfolio and Balance Sheet
Yahes said Unity completed the ironSource Ads Network shutdown and sold Supersonic to Tripledot Studios on Aug. 4. Management expects those actions to support margins in the second half.
Free cash flow reached $202 million, up 59% year over year. Cash increased to $2.36 billion, and Yahes said Unity moved from a net debt position to a net cash position.
Near-term capital priorities are focused on deleveraging. Yahes said Unity expects to repay its 2026 convertible notes in November, while stronger cash generation should expand capital allocation flexibility.
U Q&A Highlights Runtime and Unity 7
A Morgan Stanley analyst asked how much runtime data contributed to Vector’s improvement. Bromberg said runtime signals were introduced near quarter-end and remain too early to isolate, but management views the data as a long-term advantage.
A Cannonball Research analyst asked how Unity 7 differs from prior releases. Bromberg described a broader change than an engine upgrade, emphasizing coding-agent collaboration, faster workflows and compatibility with Unity 6 projects.
A Goldman Sachs analyst pressed management on long-term margins. Yahes pointed to adjusted gross margins around 82% to 83% and said Unity sees further margin expansion while funding high-return product investments.
Unity Enters the Second Half More Focused
Management’s message centered on sustaining Vector’s growth while using Unity 7 and AI tools to deepen engagement across the platform. Bromberg emphasized product velocity, runtime data and tighter integration between creation, monetization and live services.
Yahes stressed cost control, portfolio simplification and balance-sheet improvement. Third-quarter strategic revenue guidance of $540 million to $550 million calls for 44% to 47% year-over-year growth.
Zacks Signals Favor Growth
U carries a Zacks Rank #2 (Buy). Its Growth Score of A and VGM Score of B align favorably with Zacks methodology, which emphasizes A or B Style Scores alongside a top Zacks Rank.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Value Score of F is comparatively weak, while the Momentum Score of C is middle of the range. The current Zacks Rank can change as earnings estimates are revised following the just-reported results.
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