Vector +80% YoY, Unity AI Launches and Answers Genie Head-On, GAAP Profitable by Q4 — Upgrading Back to Outperform

Results vs. Consensus

Year-over-Year Comparison

Quarter-over-Quarter Comparison

Revenue Assessment

The headline is total revenue of $508M (vs $480-490M guide), but the disclosure framework has shifted. Management has explicitly bifurcated the business into "strategic" (Vector + non-IronSource Grow + Create) and "nonstrategic" (IronSource Ad Network + Supersonic publishing). Q2 26 will be the first quarter where strategic guidance is the sole headline number — and that framing tells investors what management cares about. Strategic revenue grew 35% YoY in Q1 ($433M vs ~$321M Q1'25), with both segments accelerating. The bifurcation is the right disclosure architecture for a business in mid-transformation, and it provides the cleanest view of what Unity actually owns going forward.

The Q2 26 strategic guide of $455-465M implies +29-32% YoY strategic growth — a step down from Q1's +35% but reflective of (a) the lap of Q2'25's $12M Create term-license one-time and (b) Vector's mathematical sequential-growth deceleration on a now-larger base. Strategic Grow is guided to +50-52% YoY (consistent with Vector's continued mid-teens sequential plus broader Strategic Grow contribution), and Strategic Create is guided to +11-14% YoY (modest deceleration from Q1's +15% on the Q2'25 lap). Within the Strategic line, Vector growth is the dominant driver: ~80% of Strategic Grow is now Unity Ad Network, growing 15% sequentially for the 4th consecutive quarter.

Margin Assessment

27% adj EBITDA margin (+800bps YoY) is the headline operating signal. The composition: G&A and S&M continue to decline as percentages of revenue, R&D is up 9% YoY (with AI-focused R&D up 17% YoY) — i.e., management is reinvesting heavily into AI while simultaneously expanding margins because the revenue-growth-on-incremental-Vector-revenue is throwing off enough contribution to fund both. The Q2 EBITDA guide of $130-135M implies 28.3-29.0% margin on the strategic revenue line, which embeds (a) operating-leverage continuation, (b) IronSource cost-base still in the system through Q2 (cost overhang from the April 30 sunset), and (c) AI R&D ramp.

The CFO disclosed two specific H2 26 margin catalysts on top of the organic leverage: (1) IronSource cost-base exit drives ~200bps of operating-profit improvement once costs come out in H2; (2) Supersonic divestiture drives at least another 200bps of operating-profit improvement upon completion (currently in strategic process). The combination puts H2 26 EBITDA margins in the 28-31% range — a structural step-change from the 22% FY25 average. We model FY26 EBITDA margin at 27% and FY27 at 29-30%.

EPS & Cash Flow Assessment

Adj EPS of $0.23 vs $0.20 consensus is the cleanest operating beat we've seen. The GAAP EPS of $(0.80) — a $347M GAAP net loss — looks alarming optically but reflects (a) $117M of M&A amortization (highest quarter in the runoff schedule), (b) $76M of SBC (down 20% YoY), and (c) restructuring charges associated with the IronSource Ad Network sunset. The runoff path is the encouraging signal: M&A amortization drops to $80M Q2/Q3, $55M Q4, and sub-$25M for full-year 2027. The CFO's GAAP-profitability commitment is for Q4 2026 — a structurally important milestone Unity has been working toward since the IPO. The convergence (rising EBITDA + falling amortization + falling SBC) makes Q4 26 GAAP-positive look achievable rather than aspirational.

FCF of $66M is lower than the Q3/Q4 25 record quarters (~$150M and $115M) but the TTM trajectory is the right view: $463M trailing 12-month FCF, up 50% from $308M a year ago. The Q1 FCF dip is working-capital timing (publisher payments cluster in different quarters), not a structural break. Cash position grew $90M sequentially to $2.15B. The CFO's explicit commitment to pay off the $558M November 2026 convert from balance-sheet cash removes the only remaining capital-structure overhang. Post-payoff, Unity will have $1.6B+ of cash against $1.69B of remaining 2030 converts (net debt ~$50M, essentially zero).

Segment Performance

Strategic Create — $154M, +15% YoY, 4th consecutive mid-teens YoY quarter

Create has become the steady compounder the bull case always wanted. Four consecutive quarters of mid-teens YoY growth: Q2 25 +16% ex-nonstrategic, Q3 25 +13%, Q4 25 +16%, Q1 26 +15%. The consistency is the most important pattern — it confirms the three drivers (ARPU from annual price increases, China growth, industry/non-gaming) are structurally compounding rather than benefiting from one-time tailwinds. The 5% Pro/Enterprise price increase effective January 12, 2026 (the second consecutive annual price increase under this management team) layers on top of the existing strategic-Create base. With renewal cohorts rolling through across 2026, ARPU acceleration is mechanical.

Most important Q1 disclosure on Create: a 22% reduction in user-reported Unity engine issues since the launch of Unity 6, plus a 70% market share in mobile game creation. Both metrics are forward-leading: lower issue rates correlate with developer satisfaction, which correlates with subscription retention and ARPU expansion. The 70% market share number is the cleanest competitive-position metric Unity has disclosed in this management era — and the fact that price increases are being absorbed at that share level confirms there is no meaningful pricing pressure from competitors (Unreal, Godot, custom engines).

"Our industry business outside of gaming continues to grow very strongly. We're really a leader in auto HMI. There's a range of use cases where people are looking to have indirective content for extremely sophisticated models available across a range of platforms and operating systems, which really plays to Unity's strength." — Jarrod Yahes, CFO

The browser-based Unity authoring environment and Unity AI (covered in Key Topics 2 and 4 below) are the H2 26 Create catalysts. Both substantially expand the addressable Create population beyond the current software-developer base — Unity AI for the "prosumer" creator class, browser-based authoring for non-developer team members on existing projects. Neither will move FY26 numbers meaningfully but both are structural TAM-expansion levers for FY27+.

Assessment: Create is structurally healthy and accelerating in quality. The 4-quarter mid-teens streak combined with the 5% annual price increase + Unity AI consumption pricing + browser-based collaboration creates 3 independent ARPU/seat-count expansion levers for FY27. We model FY26 Strategic Create at $635-650M (+13-15% YoY) with upside to $675M+ if Unity AI consumption monetization ramps faster than expected.

Strategic Grow — $279M, +49% YoY (Vector is ~80% of segment)

The headline Strategic Grow number ($279M) is the cleanest read on Unity's ad-platform franchise since the ironSource merger closed. Per the CFO: "80% of that strategic Grow revenue line is now the Unity Ad Network powered by Unity Vector." Vector grew 15% sequentially for the 4th consecutive quarter (Q2 25 +15%, Q3 25 +15-17% per mgmt acceleration language, Q4 25 mid-teens, Q1 26 +15%) — the streak is the structural validation that Vector compounds, not a one-quarter anomaly.

"In strategic Grow, we're forecasting year-over-year revenue growth of 50% to 52%, driven by continued robust growth in Unity Vector... Vector is an AI prediction engine. And the reason Vector is continuing to grow as we're doing a better job predicting which customers are going to like which games and matching those customers with the publisher of the corresponding game. It's a process of continuous improvement... And we've had about 4 straight quarters of 15% quarter-over-quarter growth. That growth has been broad-based. It's been balanced across different geos, different campaign types, different platforms and different genres." — Jarrod Yahes, CFO & Matt Bromberg, CEO

The CEO explicitly framed Q2 Grow's +50-52% YoY guide as not yet reflecting any runtime data contribution — that is, runtime data going live in production models during Q2 is upside to the guide. The Day 28 ROAS product (launched in Q4 25) delivered "an incremental lift of 80% for campaigns and showing a 37% ROAS improvement versus the old day 7 benchmarks." The 37% ROAS improvement is the cleanest single-product-feature performance number we have on Vector.

The non-Vector / non-IronSource portion of Strategic Grow (the remaining 20%) is the underappreciated story. At ~$56M in Q1 and growing modestly, it represents the legacy Unity ad products being re-platformed with Vector's underlying learnings. As that re-platforming continues through 2026, this sleeve becomes a second growth engine inside Strategic Grow — providing diversification beyond Vector concentration.

Assessment: Strategic Grow is the highest-quality ad-platform franchise in the public market. +49% YoY at Q1, ~+50% YoY guided into Q2, Vector growing 15% sequentially for the 4th consecutive quarter on a now-larger base, runtime data inflection ahead in Q2 production, Day 28 ROAS feature already adding +37% campaign-level lift. We model FY26 Strategic Grow at $1,250-1,300M (+40-45% YoY) with FY27 acceleration to $1,650M+ if runtime data inflection delivers as guided.

Nonstrategic Revenue — $75M Q1; sunsetting through FY26 H2

The strategic-actions disclosure architecture is the most important business-model change in this quarter. The IronSource Ad Network was sunset (closed April 30, 2026); Supersonic publishing is in active strategic-divestiture process. Together they represent ~$75M of Q1 revenue ($337M Q1 26 Grow Solutions − $279M Strategic Grow = $58M nonstrategic + ~$17M Supersonic est.). Q2 will see ~$50M of nonstrategic revenue (one month of IronSource through April 30 + Supersonic still in the system); Q3 ~$45M (Supersonic exit during Q3). H2 will be effectively cleanup quarters as the nonstrategic line goes to zero.

The strategic rationale is clear: "displacing commoditized, lower-margin ad network revenue for deeply differentiated AI platform revenue" (CFO Q4). The operational implication: focused R&D investment on Vector + Unity AI + commerce, simplified GTM organization, and 200-400bps of cumulative margin lift from cost-base exits across H2 26. The optical implication: headline revenue chart will look flat-to-down sequentially through Q2 and Q3 even as the strategic line accelerates 30%+ YoY.

Assessment: The right strategic decision optically painful through 2026 H1. The Strategic-only guidance framework removes a year of investor confusion about what Vector is actually growing — and lets the multiple re-anchor to the $1.7B+ strategic-revenue line growing 30%+ YoY rather than the $2.0B total revenue line growing 7-10%. We expect sell-side models to rebase to a strategic-revenue framework over the next 1-2 quarters, which should be a positive multiple driver as the disclosure clarity sinks in.

Key Topics & Management Commentary

Overall Management Tone: Management was the most confident we've heard them at any point in this management team's tenure — the CEO's framing "There is no company in the world better positioned to win in this marketplace than we are" is the most aggressive forward statement Bromberg has made publicly. The tone shift versus Q4's defensiveness ("I would caution investors from overreacting to LinkedIn posts") to Q1's offensive posture ("the conversation about world models and game engines has been framed as a contest, but I think that framing misses what's actually happening") reflects the substantive shift: Unity AI has shipped, the product directly addresses the Genie disruption narrative, and the operating data confirms the underlying thesis. The CFO matched the CEO's confidence with the GAAP-profitability-by-Q4 commitment and the explicit path: "Unity is poised to expand margins in 2026 to record levels while simultaneously bringing to market an incredibly exciting pipeline of products." The areas of remaining caution: management was deliberate in saying the Q2 strategic Grow guide does not embed runtime data contribution (preserving upside), and management did not size the GAAP-profitable Q4 run-rate beyond the directional commitment.

1. Unity AI Public Beta — Directly Addressing Genie

The single most important product disclosure of the call: Unity AI launched into public beta the week of the call, and the product architecture explicitly addresses the Google Genie disruption narrative head-on. Unity AI ingests image pixels (the output of world models like Genie), converts them to Unity primitives, applies mesh upscaling and textures, and constructs the full Unity content pipeline. The strategic framing: world models are upstream inputs, Unity is the operationalization layer.

"Our first Vector-driven enhancement for the Unity engine, Unity AI, went into public beta earlier this week, and the response from creators has been really gratifying. Unity AI is an integrated agent tuned specifically for Unity. It has full context for your project and is custom-made for Unity workflows... we've remarked on many occasions that generic world models would be a great source of prototyping material and that game engines like Unity could ingest those pixels, transform them into Unity scene and enable developers to build deep interactive content and systems around them. Well, that's just what Unity AI now does. It ingests image pixels, outputs primitives and does mesh up scaling and textures, constructing the entire content pipeline almost instantly. Image data is thus transformed into production-ready format, massively accelerating the process of game development." — Matt Bromberg, CEO

The single most-important early-adoption data point: 70% of Unity AI beta users were still actively engaging with the product at day 5. The CEO explicitly framed this as evidence that Unity AI's project-context-aware approach outperforms generic frontier-model coding agents: "general purpose coding agents are really powerful, but what they lack is Unity engine-specific context as well as the context of the project you're building itself. And that gap matters a lot when shipping a real game across multiple platforms."

The CEO also explicitly addressed the contest framing: "The conversation about world models and game engines has been framed as a contest, but I think that framing misses what's actually happening." This is the cleanest counter-narrative to the Q4 disruption thesis we've heard — and importantly, it is anchored by a shipped product (Unity AI public beta) rather than a defensive philosophical argument.

Assessment: Unity AI's launch and the 70%-retention metric is the substantive resolution of the Q4 Genie tail risk. The product architecture is the right strategic response — Unity becomes the consumption layer for world-model outputs rather than the engine being disrupted by them. We treat this as the load-bearing disclosure that supports the Outperform upgrade.

2. Vector's 4th Consecutive 15% Sequential Quarter and the +80% YoY Run-Rate

Vector's growth pattern has now compounded across 4 consecutive quarters at mid-teens sequential — making it one of the most consistent sequential-growth streaks of any AI-platform revenue line in public markets. Q1 26 Vector revenue is +80% YoY, on a base that was already accelerating in Q1 25. The CEO's framing: "Vector is about much more than just advertising. At its heart, Vector is personalization AI."

"Improved performance and enhanced returns for our advertising customers drove another quarter of 15% sequential growth, the fourth in a row, exceeding our own already ambitious expectations. Our Vector revenue in the first quarter of 2026 is 80% larger than 1 year ago, an astonishing result. But what we're really excited about is just how young Vector still is. We believe we've just begun to see the impact it will have for our customers and our business." — Matt Bromberg, CEO

The Day 28 ROAS product (launched Q4 25, mentioned in Q3 25 prepared remarks) is delivering empirical product-feature lifts: "an incremental lift of 80% for campaigns and showing a 37% ROAS improvement versus the old day 7 benchmarks." The Q&A surfaced that Vector growth is broad-based — across geographies, campaign types, platforms, and genres. The +80% YoY is therefore not concentrated in any single advertiser cohort or geographic mix.

Assessment: Vector growth is now empirically validated as a compounding multi-quarter franchise. The 4-quarter streak removes the "is it sustainable" question; the new question is "how long does it compound at 15%+ sequential?" Management's $1B+ exit-Q4-2026 commitment implies sustained growth through 2026; we model Vector exit Q4 26 at ~$300M quarterly ($1.2B annualized), with upside to $325M+ if runtime data delivers.

3. Runtime Data Live in Q2 Production Models

The most-anticipated catalyst of the next 90 days: runtime data graduates from offline testing to live Vector production models during Q2 2026. The CEO explicitly framed this as a compounding-improvement story, not a step-function event — "we're not expecting immediate spikes. And other than that, I would just I would observe again that we couldn't be more excited about it."

"Most notably, later this quarter, we'll see Unity's runtime data graduate to our live production models for the first time. Our conviction remains high that real-time sequential behavioral data will provide a significant future catalyst for growth. We're now ingesting this data inside Vector, and we are very encouraged with the results we're seeing in testing. And with opt-in rates to our developer data framework remaining at over 90%, adoption rates continue to scale each day, enhancing our unique competitive position." — Matt Bromberg, CEO

The CEO's articulation of why runtime data is structurally differentiated — "it's real time, so it's not delayed. It is sequential... it helps us to understand not just what consumers are doing, but what they're doing in [sequence], which if you think about your behavior in your own life, the order in which you do things is critical to understanding what it is that you're doing" — is the cleanest technical case we've heard for why Vector's structural moat extends beyond model quality to data-signal quality. The closing observation that this is "not click data, it's not conversion data, it's not post-back data. It's a different category of signal" is the strategic positioning that competitors (Meta, Google, AppLovin) cannot replicate without owning the runtime.

Assessment: Runtime data going live in Q2 production is the structural lever we've been monitoring since Q3 25. The Q2 strategic Grow guide of +50-52% YoY does not embed runtime data contribution — making any Q2 outperformance from runtime data pure upside. We treat this as the highest-confidence near-term Outperform catalyst.

4. Unity AI Consumption Pricing — A New Business Model Layer

The CFO disclosed a new pricing architecture for Unity AI: "first- and third-party agent connections" added to seat-based pricing, allowing the business model to scale with usage rather than penalize creators who use AI to be more productive. The framing is the most direct articulation of Unity's business-model evolution we've heard.

"We expect our business model in Create to evolve as we roll out new AI products. The new pricing models we've introduced with Unity AI, which account for the number of first- and third-party agent connections in addition to seats, ensures our pricing scales fairly with usage rather than penalizing creators who use AI to be more productive. Over time, we expect this will allow us to scale revenues from both agentic and human consumption. Ultimately, customers value outputs, not inputs, and we expect that business models will completely adapt to that preference." — Jarrod Yahes, CFO

The CEO added the strategic context: "concurrency is important. So you will be — in the future, we will have, of course, both human beings as well as agents interacting with our software working together and our pricing comprehends that." Translation: Unity is pricing for a future where the user base is humans + AI agents, and the revenue model captures the agentic consumption layer.

Assessment: Consumption-based AI pricing is the right business-model architecture for an AI-native era. It addresses the structural tension between Unity AI making developers more productive (which would reduce seat count under traditional SaaS pricing) and Unity needing to monetize that productivity gain. We don't model anything specific for it in 2026 (too early) but expect it to be the structural ARPU lever for FY27+ as agentic AI adoption ramps.

5. Unity Commerce Platform — Q2 Launch with Anchor Customers

Unity Commerce (the consumer-facing rebrand of Unity IAP) is on track to launch in Q2 26 with committed anchor customers: Voodoo Games and SciPlay. Management framed Unity Commerce value to Unity as a multi-faceted contribution: economic revenue share, data flowing back into Vector models, merchandising/web-shop optimization, and analytics services for developers.

"The Unity commerce platform is also on track to launch this quarter, and we already have a set of committed partners like Voodoo games and SciPlay working with us to ensure we do it right. Developers shouldn't have to be fintech experts to run a global business. That's why we think our Unity e-commerce platform is so vital. By providing a single native dashboard to manage catalogs and pricing across mobile, web and PC, we're removing the massive overhead of juggling multiple SDKs and payout systems, providing a turnkey solution for global payments." — Jarrod Yahes, CFO

The CFO's framing of commerce contribution as "data, economic revenue share and really helping our customers with merchandising and web shop optimizations and analytics" is the cleanest articulation of the multi-vector commerce strategy. Unity is not trying to be a transaction-fee business; it's providing the integrated platform that game developers use to monetize, with the data and analytics serving as the strategic flywheel back into Vector.

Assessment: Commerce launch with Voodoo Games and SciPlay (both top-tier mobile-gaming customers) is a material credibility marker. The Q2 launch timing puts the first commerce-revenue contribution in Q2-Q3 26. We model FY26 commerce contribution at ~$10M (immaterial) with upside to $50M+ FY27 if anchor-customer ramp expands to broader Unity ecosystem.

6. GAAP Profitability by Q4 2026 — Three Convergent Drivers

The most structurally important forward commitment of the call: GAAP net income profitability by Q4 2026. The CFO laid out the three convergent drivers in unusual quantitative detail.

"There are 3 factors contributing to this. Firstly, adjusted EBITDA margins are up 800 basis points... Secondly, stock comp expense is down 20% in dollar terms and is down markedly as a percentage of revenue to 15% this quarter. And lastly, we expect materially lower M&A amortization that runs off almost entirely at the end of Q4 2026. As a result, we now forecast Unity to be GAAP net income profitable by the fourth quarter of 2026." — Jarrod Yahes, CFO

The M&A amortization schedule was disclosed with unprecedented specificity: $117M Q1, $80M Q2 and Q3 each, $55M Q4 — so a roughly $315M FY26 amortization burden that drops to sub-$25M for full-year 2027. That is a $290M+ swing in GAAP earnings power between 2026 and 2027, before any operating-EBITDA growth. Combined with SBC stable around $300M annual run-rate (15% of revenue) and continued operating-EBITDA expansion, GAAP profitability in Q4 is mathematically achievable and structurally durable thereafter.

Assessment: GAAP profitability is one of the single most important multi-year inflection points for any post-IPO software company. Reaching it in Q4 2026 — five years after the IPO — is structurally meaningful. The marginal investor that has held off on Unity due to GAAP losses now has a near-term timeline. Beyond Q4 26, the M&A amortization runoff (-$290M) is essentially mechanical margin lift through FY27. We treat this as a major multiple-supporting catalyst.

7. Strategic Actions — IronSource Sunset and Supersonic Divestiture

Two strategic actions were disclosed: (1) IronSource Ad Network was sunset, closing April 30, 2026; (2) Supersonic publishing business is in active strategic-divestiture process, with expected exit during Q3. Together, these remove ~$250-300M of annualized nonstrategic revenue but add 400+bps of cumulative operating-margin improvement once cost-base exits complete in H2 26.

"As a result of our recent strategic decision to sunset the ironSource Ad Network and sell our Supersonic publishing business, our guidance moving forward will be focused on our strategic revenues. Beginning in the second quarter, there will no longer be any nonstrategic revenues in Create. In Grow, we expect $50 million in nonstrategic revenues in the second quarter... As we move to the third quarter, we expect about $45 million in nonstrategic revenue until we complete the exit of our Supersonic business." — Jarrod Yahes, CFO

The CFO disclosed specific margin contribution: "The profitability of Supersonic is such that as we divest the business, that will naturally cause our margin profile to improve. We expect at least 200 basis points of operating profit improvement upon the divestiture of that business." Combined with the IronSource cost-base exit ("That will take place over the back half of the year. And so that is an opportunity for margin expansion with us as we look towards the back half of 2026"), H2 26 margins should benefit from both actions concurrently.

Assessment: The strategic actions are the right business-model rationalization. The optical revenue impact is real but management's strategic-only guidance framework lets investors see through to the underlying growing business. We expect sell-side models to converge on strategic-revenue base by Q3 26 results.

8. Newly Released Mobile Apps +60% YoY — The Industry Tailwind Behind Unity

The single most important industry-context disclosure of the call: newly released mobile apps are up 60% YoY across both iOS and Android, with "a particularly noticeable uptick in more recent months." Within Unity specifically, newly published Made-with-Unity games were up 12% QoQ in Q1, with new Unity sign-ups showing 20% QoQ growth — the fastest growth since 2020.

"Our research is telling us that 90% of game developers are already using AI in their workflows, and these tools are accelerating the production of new games... Newly released mobile apps are up 60% year-over-year across both iOS and Android with a particularly noticeable uptick in more recent months. And remember, mobile games continue to account for the majority of all new app releases worldwide. These are the trends propelling our business forward. Newly published Made with Unity games were up 12% over the prior quarter in Q1, with new Unity sign-ups showing 20% quarter-over-quarter growth, the fastest growth since 2020." — Matt Bromberg, CEO

The strategic implication: AI is enabling more games to be created more quickly, which expands the addressable population for both Unity's Create business (more developers) and Unity's Grow business (more games to monetize via Vector). The CEO's framing — "AI is making game creation more approachable, there are also more creators. That's great for Unity. And with more creators and more games, the need for game discovery becomes ever more acute" — captures the flywheel.

Assessment: The industry-tailwind data is some of the most encouraging meta-context we've heard on a Unity call. The combination of +60% YoY new-app releases + +20% QoQ Unity sign-ups + Unity AI's launch creates a self-reinforcing dynamic — more games made via AI tools → more developers using Unity AI → more Made-with-Unity games → more Vector ad demand. The bear case requires belief that AI causes both creator-side and runtime-platform-side disintermediation simultaneously; the data shows AI is currently expanding both Unity-relevant populations.

9. Convert Payoff and Capital Structure Cleanup

The CFO confirmed Unity's intention to pay off the $558M November 2026 convertible note from balance-sheet cash — eliminating the only remaining near-term capital-structure overhang. Post-payoff, Unity will have ~$1.6B cash against ~$1.69B remaining 2030 converts (net debt ~$50M).

"In terms of cash and our balance sheet, our cash balance of $2.15 billion continues to increase each quarter as a result of our robust free cash flow. We also have a $558 million convert coming due in November of this year, and our current intention is to reduce leverage and pay it off using cash on the balance sheet." — Jarrod Yahes, CFO

The strategic implication: Unity is moving toward a debt-free / minimum-leverage balance sheet, which combined with $463M TTM FCF and accelerating growth, positions the company for capital-return discussions in FY27. The CFO declined to commit to a buyback framework on this call ("Right now, we are planning on paying off the '26 convert that's coming due in November. Other than that... we have an extraordinarily exciting AI road map in front of us, and there is a high threshold as we evaluate M&A opportunities") — but the trajectory is clear.

Assessment: The convert payoff removes the dilution-risk overhang that was a small but real bear-case lever. The pivot to capital return in FY27 will be a separate catalyst we don't currently model but believe is high-probability. Unity will be effectively net-debt-free with $400M+ annual FCF by Q4 26 — the structural setup for a buyback or dividend initiation.

Guidance & Outlook

The Q2 26 strategic guide of $455-465M (midpoint $460M; +29-32% YoY) is a continuation of the +35% Q1 trajectory. The composition: Strategic Grow at $240-245M (+50-52% YoY, with Vector at ~80% of Strategic Grow growing 15% sequential to ~$256M), Strategic Create at $152-156M (+11-14% YoY ex the Q2'25 $12M term license lap). The EBITDA guide of $130-135M implies 28.3-29.0% margin — continued expansion despite heavy AI R&D investment. The CFO explicitly noted runtime data is NOT in the guide — meaning any Q2 outperformance from runtime data is pure upside to consensus.

Implied H2 / FY trajectory: Q1 strategic $433M + Q2 strategic midpoint $460M = $893M H1 strategic. H2 strategic ramp driven by (a) IronSource cost-base exit in Q3, (b) Supersonic divestiture in Q3, (c) Unity commerce launch contribution starting Q2, (d) runtime data live in Q2 production. We model H2 strategic revenue at $1,000-1,050M, total FY26 strategic $1.9-1.95B and total FY26 revenue $1.95-2.05B.
Street at: Pre-print FY26 consensus had compressed to ~$2.0B from ~$2.13B post-Q4 25. Post-Q1 print + Unity AI launch, consensus should re-rate to $2.05-2.10B as the strategic-revenue framework gets adopted.
Guidance style: Bromberg's first 5 quarters as CEO have produced consistent beats above the high end of revenue guide. The Q1 26 strategic guide pattern continues: management is sandbagging the runtime data contribution (explicitly stated not in the guide) and assuming conservative Vector sequential growth (15% same as the trailing 4 quarters). We expect Q2 strategic to print at $470-480M and total at $520-530M.

Analyst Q&A Highlights

Unity AI vs. Frontier Model Demos — Competitive Positioning

The opening question of Q&A pressed on the central strategic question: how does Unity AI compare to frontier-model game-creation demos from companies like OpenAI, Anthropic, and Google? Management's response combined the strategic differentiation case (project context + Unity-specific tuning) with the empirical adoption data (70% retention at day 5).

Q: "Following up on the Unity AI public beta — obviously, a major step forward in terms of putting those tools in the hands of creators. There have been some demos from some of the companies behind the frontier models where they sort of showcase making games as a use case for some of these cutting-edge models from these big AI companies. I guess when you think about how that compares to what you can do with Unity AI and your ability to get in front of the next generation of game creators... where do you feel you sit in the future of these new AI game creation tools?"
— Matthew Cost, Morgan Stanley

A: "Unity AI is an integrated agent that's tuned specifically for game development and for use of Unity. General purpose coding agents are really powerful, but what they lack is Unity engine-specific context as well as the context of the project you're building itself. And that gap matters a lot when shipping a real game across multiple platforms... What we're seeing — it's only been about a week, but we're seeing really strong attachment rates in that product. So 70% of the users who adopt it are continuing to work with the product 5 days in. So that tells us that we are on the right track. And of course, we'll be tracking that as we go forward. This kind of attachment appears to be a function of better performance of our AI product than just generic models alone because those models aren't exposed to the context engineering that we bring to the table on our own products. It makes the AI more efficient. It makes it less expensive. It means less prompting is required and it's faster."
— Matt Bromberg, CEO

Assessment: The 70%-retention-at-day-5 metric is the most concrete adoption data we have for Unity AI. The strategic positioning of Unity AI as project-context-aware vs frontier-model-as-general-purpose is the right framing — and importantly, the empirical retention data validates that the project-context approach delivers measurable user value. The competitive question is now about execution rather than concept.

Runtime Data Mechanism — Why Sequencing Matters

The Wells Fargo question on runtime data was the most technically detailed exchange of the call, with the CEO articulating the structural differentiation of sequential behavioral data more clearly than at any prior point.

Q: "People are trying to unpack like why the runtime data is powerful. And as I've heard you guys talk publicly over the last several weeks, as I speak to people in the industry, I think this idea of sequencing keeps coming up, right? The idea that if we can understand what the user is doing in the app in order in a sequence, that's kind of a powerful predictor as to their likelihood to convert. And so could you maybe just like help us understand that in a little bit more detail? Like why do you think sequencing is going to be such a powerful avenue of conversion prediction in the mobile game and app space?"
— Alec Brondolo, Wells Fargo

A: "Vector is an AI prediction engine. And the reason Vector is continuing to grow as we're doing a better job predicting which customers are going to like which games and matching those customers with the publisher of the corresponding game... we rolled out last quarter a day 28 ROAS product, which enables our customers to plan and predict their return on a 28-day basis instead of just a 7-day basis. And it's driven an incremental lift of 80% for campaigns and showing a 37% ROAS improvement versus the old day 7 benchmarks... [Runtime] data is a kind of signal of the value which is going to build over time and compound. As we've said many times, it's not something we expect immediate spikes around, but we think it will be steady, meaningful improvements of quality in the model and the data over time. And as you point out, what we believe is really quite valuable about runtime data is that it's real time, so it's not delayed. It is sequential, which means it helps us to understand not just what consumers are doing, but what they're doing in [order], which if you think about your behavior in your own life, the order in which you do things is critical to understanding what it is that you're doing. So if you combine that behavioral data from inside games, which is informed also by the context of the games themselves, which are running on our run time. It's not click data, it's not conversion data, it's not post-back data. It's a different category of signal."
— Matt Bromberg, CEO

Assessment: The CEO's technical framing — "It's not click data, it's not conversion data, it's not post-back data. It's a different category of signal" — is the cleanest articulation of why runtime data is structurally differentiated from anything Meta, Google, or AppLovin can replicate. The Day 28 ROAS data point (+80% lift, +37% ROAS) is the empirical proof point for the broader pattern: signal-quality improvements translate to advertiser ROAS improvements, which translate to incremental spend. This is the multi-quarter compounding lever.

Strategic Grow Composition — Model Enhancements vs Self-Learning

The Jefferies question pressed for a decomposition of Vector's growth between model enhancements (product features), self-learning improvements, and data signal upgrades. Management declined to delineate quarter-by-quarter contributions but confirmed all three vectors are contributing simultaneously, with runtime data as the under-modeled upside.

Q: "Based on the guide for strategic grow revenue, you've been pretty consistent in this mid-teens sequential growth trajectory. Is there a way that you can help sort of frame up the composition of growth between model enhancements and self-learning? Any way to frame that up?"
— James Heaney, Jefferies

A: "Just as we think about strategic grow, we're extremely excited about the trajectory of growth. It's over 50% year-over-year. 80% of that strategic grow revenue line is now the Unity Ad Network powered by Unity Vector. And so that's really the driver of that substantial growth. As Matt mentioned, there are numerous constituents to that growth, which include model improvements, product enhancements as well as data and signal. We don't break out or delineate the individual contributions in a quarter of any one of those. But suffice it to say, we are powering along all 3 of those axes, with one of the most interesting and proprietary elements of it, our runtime data on the come. So we're enthusiastic about it, and we're confident in the future."
— Jarrod Yahes, CFO

Assessment: The "80% of Strategic Grow is now Unity Ad Network" disclosure is the cleanest single number on Vector's share within the segment. With Vector at 80% and growing 15% sequentially while the other 20% (non-Vector, non-IronSource Strategic Grow) grows modestly, the segment-level math compounds at +49% YoY in Q1 and +50-52% guided into Q2. The three-vector composition (model + product + signal) is the structural durability frame.

Industry Tailwinds and the Prosumer Creator Class

The BTIG question explored whether the +12% Made-with-Unity games + +20% Unity sign-ups data signals a structural commercial-opportunity expansion. The CEO offered the most expansive vision yet of Unity's prosumer creator opportunity — extending beyond professional developers to "hundreds of millions" of social-media creators who will add interactive elements to their content.

Q: "Matt, I appreciate some of the data points and comments that you made upfront around release volume sign-up trends. I can't recall a lot of quarters over the past couple of years where we've had those sort of positive callouts. At the risk of connecting dots, it feels like browser AI tools, a lot of the work on the product side that you're doing with Create is closing some of the gaps that might have been sort of temporarily created at the upper end of the market. I'm curious how you guys see this sort of collectively changing the commercial opportunity for the Create business as it relates to sort of both professionals and hobbyists and maybe what that means for segment growth near to medium term?"
— Clark Lampen, BTIG

A: "We've been on a journey, a product journey over the last couple of years, and it's been a really exciting one. As you recall, the first stop on that journey was ensuring that our software for our core professional audience was stable and performant... advancements in AI are creating the opportunity to be more effective and efficient in building. That is a very important advantage for our professional customers... But we're equally excited about the creation of a new class of creators that ultimately is going to be much, much larger than the professional class. There will be distinctions as there always have been and there always will be between those that are capable of creating professional hit interactive entertainment and a class of, call it, prosumers who will, however, be newly enabled and capable of creating very high-level interactive entertainment. And if you think about the hundreds of millions of folks around the world, for example, who are creators on social — various social networks who are mostly doing — creating linear video. We believe in the future, all those creators will be adding interactive elements and interactive entertainment to the kinds of things that they're creating because that is, by far, the most direct way to increase engagement."
— Matt Bromberg, CEO

Assessment: The "prosumer creator class" vision is the most ambitious TAM-expansion narrative Unity has articulated. The framing — hundreds of millions of social-media creators adding interactive elements to their content — implies a population multiples larger than today's Unity user base. The Unity AI public beta + browser-based authoring + Unity Commerce stack creates the toolchain to address that population. Near-term: doesn't move FY26 numbers. Multi-year: structurally re-rates the long-run growth-rate assumption.

AI Business Model Evolution — Consumption Pricing

The Citizens question explored how the business model evolves as AI usage scales across the Unity platform. The CEO confirmed the pivot from seat-based SaaS to a hybrid seat + consumption model is already underway, with Unity AI's pricing as the canonical example.

Q: "I wanted to ask about AI and the increased use of tokens across the platform. Matt, as I think about what the potential is in terms of moving towards more of a usage model, can you help us unpack how the business model has to evolve as AI just becomes more of the centralized piece of Unity?"
— Andrew Boone, Citizens

A: "AI-driven products are effectively a productivity enhancement for our customers. And the principle is that pricing should scale with usage and value created. And we don't want to penalize our creators for being more productive. Because ultimately, as Jarrod noted at the outset, customers value the outputs, not the inputs. And our models are adapting to that preference. So our current relationship with our large enterprise customers is already one that leverages an idea of minimum pricing that's only partially driven by the number of seats and it's really very amenable to modifications that reflect consumption. And so the business model is evolving very organically is in the right place... The pricing of [Unity AI] currently reflects that, and it reflects not just a consumption model, but also a recognition that concurrency is important. So you will be — in the future, we will have, of course, both human beings as well as agents interacting with our software working together and our pricing comprehends that."
— Matt Bromberg, CEO

Assessment: The consumption-pricing pivot is the right architecture for an AI-native era. Critically, the CEO confirmed Unity's enterprise customers already operate under a hybrid minimum-pricing model that can flex toward consumption — i.e., the contract-level architecture for the pivot is already in place. The agentic-consumption pricing layer is what makes this a structurally different business in 5 years.

Cloud Costs and the Investment Cycle

The Bank of America question pressed on whether cloud costs are pressuring gross margins as AI compute ramps. The CEO confirmed cloud costs can bounce in any given quarter during investment phases but the structural trajectory is operating leverage on cloud as the business scales.

Q: "For the remainder of this year, you're going to get some runtime data. Your engineers are going to be experimenting and hopefully finding improvements to your models with every passing month. I wanted to know how you think about the evolution of cloud costs and your contribution margin in the context of that and whether you want to maintain some minimum kind of contribution margin above which investments would not exceed."
— Omar Dessouky, Bank of America

A: "We've experienced 82%, 83% adjusted gross margins, which are inclusive of our cloud costs as the largest contributor to that COGS line. It is true that when we are in the process of investment and testing, those cloud costs can bump up in any one particular quarter, and we typically see an operating leverage that follows as a result of the revenue growth that comes from those investments. We do believe that as this business scales and grows, that there is an opportunity for long-term operating leverage with respect to cloud costs. If you look at larger competitors in this space, their cloud costs as a percentage of revenues are materially lower than Unity's at a larger size and scale in a similar business. And so that is a significant opportunity for us. The reason why we don't talk about gross margin leverage and commit to that in concrete terms is we really want to make sure that we preserve the flexibility for our teams to invest in AI and to invest in Vector and make sure that they have those degrees of freedom to invest for growth."
— Matt Bromberg, CEO

Assessment: The cloud-cost discipline is the right balance. Management is investing aggressively into the AI cycle but explicitly committing to operating-margin expansion. The acknowledgment that larger competitors in the space (AppLovin, Meta, Google) have lower cloud-cost ratios at scale is the cleanest articulation of the structural margin-expansion opportunity over a 3-5 year horizon.

Capital Allocation and the Convert Payoff

The Deutsche Bank question on capital allocation produced the most direct framework yet on Unity's near-term cash priorities. The CFO confirmed the November 2026 convert payoff is the only committed use of cash, with M&A treated as a high-threshold consideration and organic investment as the primary deployment.

Q: "I can't help but notice that cash is piling up on the balance sheet. Your free cash flow is improving. I'd be curious to hear about capital allocation priorities and how you think philosophically about supplementing the business with perhaps inorganic growth."
— Benjamin Black, Deutsche Bank

A: "You are correct. Cash is building up on the balance sheet. We have $2.15 billion of cash as of the first quarter. It's a function of extremely strong free cash flow. On a trailing 12-month basis, free cash flow is up 50% to $463 million, up from $308 million last year. So there's a tremendous amount of free cash flow the business is generating with and we're poised for margin expansion in the back half of the year as well. Right now, we are planning on paying off the '26 convert that's coming due in November. Other than that, in terms of uses of cash, we're really focused on our product road map, organic investment in our business. We think we have an extraordinarily exciting AI road map in front of us, and there is a high threshold as we evaluate M&A opportunities. So I think you'll see us be prudent with our cash, not distract our product teams and make sure we can execute on the really strong organic growth opportunity we have in front of us."
— Jarrod Yahes, CFO

Assessment: The capital-allocation framework is appropriate for the current product-cycle inflection. Convert payoff removes dilution risk; M&A discipline is the right posture during the AI-product-launch phase. We expect a more formal capital-return framework discussion at year-end 2026 once GAAP profitability inflects and the cash build is even larger.

What They're NOT Saying

1. FY26 full-year revenue guidance: For the second consecutive quarter, management has not provided FY26 revenue or EBITDA guidance. The Q2 strategic guide gives directional confidence, and the FY trajectory is calculable from quarterly cadence, but the formal FY guide remains absent. We expect this will reappear at the Q2 26 print as management gains confidence in the strategic-only disclosure framework.
2. Unity AI pricing dollars / unit economics: Management referenced "first- and third-party agent connections" as a new pricing dimension but did not disclose per-agent pricing, per-token economics, or expected per-customer ARPU lift. The pricing-architecture intent is clear; the magnitude is not.
3. Runtime data revenue contribution estimate: Management explicitly said Q2 strategic Grow guide does not embed runtime data contribution but did not size the H2 26 contribution. This is appropriate (the data is too new to forecast reliably) but it means analysts have to estimate the contribution bottom-up.
4. Vector segment-level disclosure going forward: The "Vector is 80% of Strategic Grow" disclosure on this call is the most-precise Vector-share data point management has provided. Going forward, management has signaled they will not continue to break Vector out as a separate line — Strategic Grow is the consolidated reporting unit.
5. Supersonic divestiture proceeds / timing: Management confirmed the strategic process is active and the business exits in Q3, but did not disclose expected sale proceeds, buyer set, or specific timing. The proceeds (likely meaningful given Supersonic's publishing portfolio) would augment the cash balance — a separate capital-allocation story.
6. Unity Commerce revenue economics: The CFO referenced "data, economic revenue share and really helping our customers with merchandising and web shop optimizations and analytics" but did not size the revenue contribution or the take-rate structure. Voodoo Games and SciPlay as anchor customers gives a credibility marker but no commercial economics.
7. Bernard Kim's board start date and his strategic role: Per Q4 disclosure, the former Match Group CEO joins the board May 1, 2026. Not mentioned on the Q1 call. The strategic relevance of his Match Group background to Unity's consumer-engagement and monetization stack is meaningful but unaddressed.
8. Capital return framework: No mention of buybacks despite $2.15B cash position and accelerating FCF. Reinvestment-over-return remains the implicit posture. We expect a formal capital-return discussion to begin at the Q3 26 or Q4 26 print once the convert payoff is complete and GAAP profitability is in hand.

Market Reaction

• Pre-print setup (May 6 close): $27.28. The stock had recovered +46% from the Feb 13 low of $18.68 across 3 months as the Genie narrative softened and the Q1 sequential read pointed to operating-thesis stability. YTD performance entering the print was modest given the Q4 25 drawdown still in the base. Positioning into the print was lighter than at any prior Bromberg-era print given the post-Feb growth-fund rotation.
• Day-of action (May 7): Pre-market gap UP +9.5% on the print to $29.86; intraday range was wide ($30.65 high, $26.33 low — 14.5% range). Close $26.73 (-2.0% from May 6) on volume of 32.8M shares (~3x normal). The intraday reversal mirrored the Q2 25 pattern (gap up, sold off, closed below pre-print) — but the close at -2% was meaningfully less negative than the Q2 25 -6%, suggesting bears had less room to press after the +46% recovery rally going in.
• T+1 (May 8): Open $26.50, intraday high $28.18, low $25.81, close $28.16 (+5.35%). Volume 17.3M (1.5x normal). Recovery above the pre-print close, signaling the Unity AI launch + GAAP-profitable-Q4-26 + strategic-action disclosures landed positively on reflection.
• Sell-side reaction (May 7-8):
  • Morgan Stanley: Overweight maintained; PT raised $30 → $36
  • Jefferies: Buy maintained; PT raised $32 → $38
  • Citizens: Buy maintained; PT raised $34 → $40
  • Goldman Sachs: Neutral maintained; PT raised $26 → $32
  • Oppenheimer: Outperform maintained (no PT change)
  • Deutsche Bank: Hold maintained; PT raised $30 → $34 ("Unity AI launch reframes the disruption narrative")
  • Bank of America: Underperform → Neutral; PT $18 → $26
  • UBS: PT raised $32 → $36
  • Benchmark: Hold maintained; "watching Unity AI traction"
  Multiple PT raises across the board; one rating upgrade (BofA Underperform → Neutral); no downgrades. The Genie narrative has been substantively reframed.
• Peer reaction: AppLovin closed up modestly on May 7 (~+1%) on read-across ad-tech demand strength. Mobile-gaming publishers (Take-Two, EA, Roblox) flat. Roblox specifically up modestly on the +60% YoY new-mobile-app-release data point.

The market reaction reflects the genuine ambiguity of the print. The operating data was the strongest Unity has produced; the Unity AI launch substantively addresses the Q4 disruption thesis; the GAAP-profitable-Q4-26 commitment is a material multi-year inflection; the strategic-action disclosure clarifies the disclosure framework. But the +46% pre-print recovery from the Feb low means the easy money on the Outperform thesis has already been made by patient institutional capital that bought the Feb low. The intraday reversal -2% close therefore represents a "buy the rumor, neutral the news" reaction rather than rejection — the bull positioning was already in place.

The T+1 recovery to $28.16 is the more informative signal. Closing above the pre-print level after 24 hours of digestion + sell-side recalibration signals that the substantive reset is positive. The MS PT raise to $36, Jefferies to $38, Citizens to $40 — all signal the institutional view is moving back toward Outperform. The BofA upgrade from Underperform to Neutral is the cleanest signal of the Genie-narrative reframe.

Street Perspective

Debate: Does Unity AI's 70%-retention-at-day-5 signal real product fit or beta-launch curiosity?

Bull view: 70% retention at day 5 in a productivity tool beta is materially above typical software beta retention (typically 40-55% at day 5). The product is project-context-aware in ways frontier-model coding agents fundamentally cannot replicate. Unity's 70% mobile-game-creation market share gives a massive built-in distribution moat. The combination of better performance + integrated workflow + huge distribution will compound. Q2-Q3 will give the empirical retention data — at scale, sustained retention above 50% would validate the bull thesis structurally.

Bear view: Day 5 of a beta is too early to declare product-market fit. Frontier model capabilities continue to advance — by GDC 2027, Google, OpenAI, and Anthropic could each have stronger game-creation tools than Unity AI today. Unity AI's project-context advantage assumes Unity remains the platform of choice; if browser-based world-model alternatives emerge as the new orchestration layer, Unity's distribution moat could erode. The 70% retention is a useful early signal but does not yet prove durable competitive advantage.

Our take: 70% at day 5 is a strong leading indicator but not yet a multi-year proof. The structural question is whether Unity AI's project-context approach + Vector's monetization integration creates a sticky-enough flywheel to outlast frontier-model capability gains. We give the bull case probability ~65%, the bear case ~35%. Position-sizing reflects that distribution — Outperform but at moderate (not high-conviction) weight.

Debate: Is the strategic-action restructuring net accretive or dilutive?

Bull view: IronSource sunset + Supersonic divestiture remove ~$250-300M of low-quality, low-margin revenue while delivering 400+bps of operating-margin lift across H2 26. The strategic-only guidance framework lets the multiple anchor to the $1.85-1.95B Strategic Revenue line growing 30%+ YoY rather than the $2.0B total revenue line growing 5-7%. The optical revenue headwind is temporary (3 quarters); the margin lift and disclosure clarity are durable. Right strategic decision.

Bear view: ~$250-300M of revenue exiting in 12 months represents a meaningful headline drag. The Strategic line growing 30%+ YoY requires investor education to be priced correctly — sell-side models take 1-2 quarters to converge on the new framework. During the transition, the total-revenue chart looks flat-to-down, which the market may struggle to look through. The margin lift is real but back-half-loaded; H1 26 still shows the optical pressure.

Our take: The bull case is structurally correct. Quality of revenue matters more than quantity for the multiple. The strategic-only framework is the right disclosure architecture for a business in transformation. The 1-2 quarter educational transition is a real positioning risk but not a thesis risk. We see fair value re-rating once sell-side coalesces around strategic-revenue framework (we expect Q2 26 print).

Debate: Does Q4 2026 GAAP profitability matter to the multiple?

Bull view: GAAP profitability is one of the most-significant multi-year milestones for any growth-software company. It opens Unity to the pool of GAAP-screening institutional capital (which constitutes a meaningful share of large-cap mutual fund AUM) that has structurally excluded the stock. Combined with $400M+ FCF and accelerating growth, the post-Q4 26 setup is the cleanest investment case in Unity's post-IPO history. The market currently prices ~5x EV/Sales — a clear discount to peers that already trade as GAAP-profitable.

Bear view: The Q4 26 GAAP-profit print is one quarter of marginal GAAP positive earnings (likely a few cents per share); structural full-year GAAP profitability requires FY27+ when amortization fully rolls off. Markets price reality rather than milestone announcements — the stock won't re-rate on a GAAP-positive Q4 print alone. The longer-term GAAP profitability matters less than the FCF trajectory, which has already been disclosed and partially priced.

Our take: Both sides are partially correct. Q4 26 GAAP positive is a meaningful narrative milestone but not a multiple-resetting event by itself. The structural FCF + cash-build + capital-return discussion at end of 2026 is the more important multi-year setup. We treat GAAP profitability as a supporting catalyst, not the load-bearing thesis driver.

Model Update Needed

Valuation impact: At May 8 close of $28.16 and ~430M diluted shares, market cap is ~$12.1B; cash $2.15B - $558M Nov 26 convert paydown - $1.69B 2030 converts = net debt $0.1B; EV ~$12.2B. On revised FY26 estimates of $2.025B revenue and $525M EBITDA, U trades at 6.0x EV/Sales and 23.2x EV/EBITDA. On FY27 estimates of $2.45B revenue and $685M EBITDA, U trades at 5.0x EV/Sales and 17.8x EV/EBITDA. Peer comparison: AppLovin ~25x FY26 EBITDA, Roblox ~70x, ad-tech median 16-18x. Applying a 22-25x EV/EBITDA multiple on FY26 (in line with high-quality ad-tech median + Unity AI optionality) gets to $11.5-13.1B EV, or $27-30 per share. Applying 20-25x on FY27 gets to $13.7-17.1B EV or $32-39 per share. Our 12-month fair-value estimate: $32-38 (14-35% above May 8 close), with $40+ achievable on Unity AI scaling above the 70%-retention base and runtime-data delivering measurable Vector lift in H2 26.

Thesis Scorecard Post-Earnings

Overall: The thesis is structurally confirmed at every dimension. Vector compounds; Create accelerates; operating leverage delivers; Unity AI substantively addresses the disruption narrative; strategic actions reframe the business model for higher-quality disclosure; GAAP profitability inflection is committed. The only open question is the 3-5 year frontier-model trajectory, which is unknowable in any single quarter and is appropriately reflected in the 6x EV/Sales multiple Unity now trades at (vs the 12x peak in Q3 25 and the 4x trough in Q4 25).

Action: Upgrading to Outperform from Hold. All three Q4 upgrade triggers were hit. Fair value $32-38 over 12 months ($40+ upside if Unity AI scales above 70% retention and runtime data delivers measurable Vector lift in H2 26). Position sizing: 3-4% (higher than Q3 25 Outperform's 2-3% sizing) because the Q4 multiple compression has removed much of the post-rally regression risk. Re-downgrade trigger: Q2 26 strategic revenue prints below $455M (low end of guide) OR Unity AI day-30 retention drops below 50% OR runtime data delivers no measurable Vector lift through Q3 26. Position-expansion trigger: Q2 26 strategic prints $475M+ with EBITDA margin 29%+ AND Unity AI retention sustains 60%+ at day 30 AND first runtime-data lift disclosure in Q3.