Financial Trends -- 7/10
A genuine worse-to-better inflection after the 2024 "Project Aura" strategic-portfolio reset (sunset
of legacy ironSource Aura, Wētā divestiture, ad-network rationalization) washed non-strategic
revenue out of the base. Revenue YoY has accelerated for five straight comparable quarters (-5.5% to
+16.8%), the Vector AI ad engine is driving Grow re-acceleration (+23.5% YoY in Q1'26), Adjusted
EBITDA margin has expanded ~800bps off its Q1'25 trough to 27%, and free cash flow is positive and
compounding (FY25 $404M, +41%) with convertible debt being paid down. Held at 7 (not 9): the
acceleration is partly comp-aided off a deliberately depressed base, and ~5-6%/yr share dilution plus
still-negative GAAP profitability (breakeven guided Q4'26) keep this short of a pristine compounder.
Weight: 25%
Adj. EBITDA Margin
27%
+800bps off trough | Expanding
FCF
Growing
FY25 $404M, +41% | Positive
Share Count
Diluting
~5-6%/yr | Watch item
Quarterly Revenue Trajectory ($M)
Clean, monotonic five-quarter revenue acceleration: -5.5% to +16.8% YoY.
As the non-strategic ironSource revenue washed out of the base and the Vector AI ad engine
inflected (Grow +23.5% YoY in Q1'26), the top line turned decisively positive. The caveat: a
chunk of the acceleration laps a deliberately reset, depressed 2024-early-2025 base, so it is
partly easy-comp recovery rather than pure organic momentum.
Segment Revenue -- Grow (Ads) vs Create (Engine) ($M)
Grow (~68% of revenue) is both the larger and the faster-growing
segment. Grow YoY accelerated from -4.1% (Q1'25) to +23.5% (Q1'26) on the Vector AI ad
engine; Create (~32%) has stabilized in the mid-single to low-double digits. The mix is shifting
further toward Grow -- which means Unity's profile is increasingly tied to mobile advertising, the
theme where its competitive position is weakest.
Adjusted EBITDA & Margin ($M)
Adjusted EBITDA margin expanded ~800bps off its Q1'25 trough (19%) to 27% in Q1'26.
Non-GAAP gross margin holds flat-high at ~82-83%. Note: the 2026Q1 GAAP gross margin and net loss
are distorted by a large non-cash impairment/restructuring charge (GAAP gross margin optically 31%
vs non-GAAP 82%; net loss spikes to -$347.6M) -- the non-GAAP margin is the clean read.
Annual Financial Summary (FY ends December, $M)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Total Revenue | $1,110.5M | $1,391.0M | $2,187.3M | $1,813.3M | $1,849.6M |
| Revenue YoY | — | +25.3% | +57.3% | -17.1% | +2.0% |
| Adj. EBITDA | — | ($71.0M) | $447.8M | $389.8M | $408.8M |
| GAAP Net Loss | — | ($921.1M) | ($822.0M) | ($664.1M) | ($402.8M) |
| Free Cash Flow | ($153.4M) | ($116.6M) | $178.8M | $286.0M | $403.9M |
| Wtd-Avg Dil. Shares (M) | 282.2 | 310.5 | 380.5 | 396.0 | 420.9 |
| Convertible Notes | $1,703M | $2,707M | $2,712M | $2,239M | $1,679M |
Key trends
- Revenue inflecting up post-reset: The 2024 "Project Aura" reset cut FY2024 revenue to $1,813M from $2,187M (-17%); once non-strategic revenue washed out, FY2025 turned positive (+2.0%) and quarterly YoY re-accelerated to +16.8% by Q1'26
- Adjusted EBITDA margin expanding: From a 19% Q1'25 trough to 27% in Q1'26 (+800bps); non-GAAP gross margin steady at ~82-83%
- GAAP net loss narrowing sharply: From -$921M (FY22) to -$403M (FY25); GAAP breakeven guided for Q4'26
- FCF positive and compounding: -$153M (FY21) → $404M (FY25), including +41% in FY2025 alone
- Deleveraging, but diluting: Convertible notes stepped down from $2,712M to $1,679M, while weighted-average diluted shares climbed ~5-6%/yr (282M to 421M since FY21)
Watch Items -- Not Penalty Triggers
| Watch Item | Detail | Penalty |
|---|---|---|
| Comp-Aided Acceleration | A chunk of the +16.8% YoY laps a deliberately depressed 2024-early-2025 base -- partly easy-comp recovery, not pure organic momentum | Held to 7 |
| Persistent Dilution | Diluted shares +5.4% YoY in Q1'26 (below the 10% penalty threshold); erodes per-share FCF | None |
| Not Yet GAAP-Profitable | FY25 GAAP net loss -$403M; still loss-making, though narrowing sharply. GAAP breakeven guided Q4'26 | None |
| 2026Q1 GAAP Charge | Large non-cash impairment/restructuring distorts GAAP gross margin (31% vs 82% non-GAAP) and net loss (-$347.6M) -- one-time, non-operational | None |
Score Rationale
Score of 7/10 reflects a genuine worse-to-better trajectory with real cash generation -- not yet a clean compounding machine. None of the mandatory penalty modifiers trigger.
Supports the score:
- Revenue YoY accelerating for five straight quarters (-5.5% to +16.8%), driven by the Vector AI ad engine (Grow +23.5% YoY in Q1'26)
- Adjusted EBITDA margin expanding ~800bps off trough to 27%; non-GAAP gross margin steady at ~82-83%
- FCF positive and growing (FY25 $404M, +41%; +60% the year before)
- GAAP net loss narrowing sharply (-$921M FY22 to -$403M FY25); convertible debt being paid down ($2,712M to $1,679M)
Why not 9 (judgment holds, no penalties):
- The acceleration is partly mechanical -- it laps a deliberately reset, depressed 2024-early-2025 base, so a chunk is easy-comp recovery
- Persistent ~5-6%/yr share dilution and still-negative GAAP profitability (breakeven only guided for Q4'26) keep this short of a pristine profile
- No penalty modifiers apply: FCF is positive and growing, dilution is below the 10% threshold, operating losses are narrowing not widening, and debt is declining
Quality-gate answer -- positive & growing FCF: YES. FY2025 FCF $404M (+41% YoY); TTM FCF solidly positive.
Data sourced from Daloopa (company_id 16442); market data from FMP (2026-06-29). Fiscal year ends December 31. All financials in USD.