Unity Software Inc. reported a 17% rise in first-quarter revenue to $508.2 million, driven by strong performance in its advertising and creation tools segments. However, a $279 million impairment charge related to the wind-down of legacy operations pushed the company's net loss to $347 million, overshadowing the top-line growth.
The results put CEO Matt Bromberg's turnaround strategy under the spotlight. Unity is working to accelerate growth in its core engine, ad network, and AI products while winding down the ironSource Ads Network and seeking a buyer for its Supersonic game publishing unit. The company's shares experienced volatility, trading as high as $31.20 before slipping 1.8% to $26.80 by midday.
Revenue from Create Solutions, which includes subscriptions and services for building interactive games and apps, reached $156.6 million. Grow Solutions, covering app ad and monetization tools, contributed $351.6 million. Adjusted EBITDA jumped to $138 million, representing a 27% margin, up from $84 million a year earlier. Free cash flow also improved significantly, climbing to $66 million from just $7 million in the prior-year period.
Bromberg highlighted "more games, more creators, and more game discovery" as key growth drivers. Strategic revenue, which excludes discontinued or divested assets, surged 35% to $432.4 million. CFO Jarrod Yahes told analysts on the earnings call that the company is targeting "GAAP profitable by the fourth quarter of 2026." For the second quarter, Unity expects strategic revenue in the range of $455 million to $465 million, with adjusted EBITDA between $130 million and $135 million.
The standout performer was Unity Vector, the company's AI-powered ad platform. Bromberg described Vector as "an AI prediction engine" that connects players to games. Revenue from Vector jumped 80% year-over-year in the first quarter, marking the fourth consecutive quarter of 15% sequential growth.
Unity faces competition on multiple fronts. Its latest annual filing identifies Epic Games' Unreal Engine as a key rival in creation tools, while AppLovin is flagged as a major competitor in the Grow segment, where ad technology and data models are increasingly critical.
The company's turnaround plan carries significant risks. Unity noted uncertainty around AI investments delivering returns and its reliance on external AI models, which could lead to higher costs or restricted access. There is also a risk that AI advancements could enable rivals or users to automate tasks that Unity currently monetizes. Additionally, shutting down ironSource may result in greater customer or revenue losses than anticipated, and the sale of Supersonic depends on finding a willing buyer.
Unity's narrative is becoming clearer: strategic growth is accelerating, cash flow is improving, and the AI message is more focused. However, GAAP losses have widened, and the stock continues to experience sharp swings with each quarterly update.
