Pre-market plunge of nearly 30%, core performance indicators double kill expectations: Has the market mistakenly killed Unity's AI transformation?

Global leading game engine developer Unity Software (U.US) announced its fourth quarter earnings for 2025 on Wednesday, giving a strong counterattack to doubts in the market that "AI is weakening the value of traditional software". The company exceeded market expectations with strong key metrics. The AI-driven Vector business achieved double-digit growth for the third consecutive quarter, along with the Create business performing at its best in two years, leading the company to reach quarterly revenue of over 5 billion dollars for the first time. The data shows that the company's total revenue for Q4 was 5.031 billion dollars, surpassing the market's consensus expectation of 4.8895 billion dollars; earnings per share (EPS) were 0.24 dollars, which is 0.03 dollars higher than analysts' expectations of 0.21 dollars. Breakdown of core business: AI is not a challenger, but a growth engine The Vector business has become the core growth driver of Unity's Grow sector. This business contributed 56% of the revenue of the Grow sector and achieved double-digit growth for three consecutive quarters, indicating that its algorithm-optimized ad distribution system is regaining momentum. The company continues to strengthen the application of machine learning capabilities in bidding and traffic distribution, improving monetization efficiency, and enhancing competitiveness. The revenue of the Create solutions reached 1.65 billion dollars, an 8% year-on-year growth. The adoption rate of the Unity 6 engine reached a historic high, showing that the developer ecosystem remains stable. Against the backdrop of rapid development in generative AI tools, Unity has maintained core user stickiness by embedding AI-assisted functions into the engine workflow, rather than replacing traditional development processes. In terms of profitability, Q4 GAAP net loss significantly narrowed to 89 million dollars, with a loss rate optimized to 18%; free cash flow increased by 12.3% year-on-year to 1.19 billion dollars. The improvement in financial structure mainly came from cost control and operational efficiency improvements, while the company maintained investment pace in AI capabilities, improving the balance between profitability and growth. Validation period for growth trajectory: Market awaits further evidence In terms of performance guidance, the company expects the median revenue for Q1 2026 to be 4.85 billion dollars, slightly lower than analysts' expectations of 4.918 billion dollars, with a deviation of approximately 1.4%. Although the difference is limited, in the context of the software sector facing scrutiny of sustainable growth, the market is highly sensitive to changes in guidance, with pre-market stock prices falling by about 25%. Analysts believe that this stock price volatility may reflect investors' concerns about the structural adjustments within the Grow sector, especially as some non-core businesses are still under pressure. At the same time, the market is reassessing whether the growth momentum of the Vector business can continue, and its hedging ability on the overall revenue structure. However, looking at the trend of consecutive quarterly growth, Vector has shown a clear path to recovery. Future stock performance may depend on whether this business can maintain profit quality while expanding in scale, and further validate its strategic position in the company's growth model. Company executives have expressed optimism. Unity's President and CEO Matt Brownburg said, "Once again, our performance in the fourth quarter easily exceeded the upper limit of guidance. Vector has shown rapid growth momentum, with the business achieving double-digit revenue growth for three consecutive quarters, while Create business has also recorded the fastest growth in over two years." "With Vector demonstrating rapid growth momentum and Unity 6 engine adoption speed reaching our highest levels in history, the company's strategic goal of becoming the core infrastructure for the next generation of interactive entertainment is becoming increasingly clear."