Unity Software Inc. (U) Q3 2026 Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Unity Technologies Q3 Earnings Call. [Operator Instructions] I will now hand the conference over to Alex Giaimo, Head of Investor Relations. Alex, please go ahead.

Alex Giaimo: Good morning, everyone. Thank you for joining, and welcome to Unity's Third Quarter 2026 Earnings Call. I'm joined this morning by our CEO, Matt Bromberg; and our CFO, Jarrod Yahes. Before we begin, I want to note that today's discussion contains forward-looking statements, including statements about goals, business outlook, industry trends and expectations for future financial performance and similar items, all of which are subject to risks, uncertainties and assumptions. You can find more information about these risks and uncertainties in the Risk Factors section of our filings at sec.gov. Actual results may differ, and we take no obligation to revise or update any forward-looking statements. During today's meeting, we will discuss non-GAAP measures. These non-GAAP financials are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A full reconciliation of GAAP to non-GAAP is available in our press release and on the sec.gov website. With that, I will turn it over to Matt.

Matthew Bromberg: Thank you, Alex. Good morning, and thank you to all of you for joining us this morning. It's a distinct privilege, as always, for us to share with you the work of our Unity colleagues from all over the world. Typically, we begin our remarks by offering a high-level view of our performance. Today, let's get right into the numbers. Any superlatives we might offer are already deeply embedded in the math. In Q3, Unity delivered strategic revenue growth of 59% year-over-year and adjusted EBITDA growth of 134% year-over-year. And for the fourth quarter, we are guiding to continued acceleration in both revenue growth and margin expansion on a year-over-year basis. The quarter also marks a historic milestone for Unity as we achieved GAAP profitability for the first time since our IPO, and it was substantial profitability at that. We delivered a 20% net income margin in Q3, supported by adjusted EBITDA margins, which have nearly doubled from where they were just a couple of years ago. And although these numbers do speak for themselves to a large degree, the progress at Unity remains deeply connected to the people that support and deliver it, the products that produce it and the strategy that helps both us and our customers make sense of it. The Unity flywheel is just beginning to spin, and we expect the forces driving it to power our business well into the future. AI is making game creation more approachable and more efficient, leading to both more creators and more games being launched. More creators and more games drive more usage of our authoring and live operations platform. And as the market becomes more crowded with new titles, the need for effective game discovery becomes more intense, propelling our advertising business forward. At the very center of the flywheel producing these results this quarter sits Unity Vector. So let's take a moment to establish a common understanding of how Vector is contributing such enormous value. Vector revenue grew 126% year-over-year and 40% quarter-over-quarter, which was double our guidance for 20% quarterly growth. Vector performance continues to be driven by 3 pillars: constant optimization of our self-learning AI models, new customer-centric product releases and unique high-quality data. These pillars operate together as we scale. As our models continuously retrain on larger, higher-quality data sets, they unlock superior targeting precision. More precision enables a better return on advertising spend. Better return on advertising spend enables customers to acquire more players more profitably, which in turn fuels increased spend on our platform. And great new product releases like our Day 28 Optimizer allow more customers to use our improved models to better effect, which intensifies the entire cycle, especially as new customers learn of the positive impact we are having across the industry. And just to be especially clear, as it is often a topic of some speculation, Vector's accelerating growth is primarily a result of a greater volume of installs and higher player values, not changes in take rate. And we love this because it means both that the underlying unit economics are healthy and that revenue continues to scale without impacting our customers' margins. While Vector continues to deliver extraordinary value, the flywheel is also accelerating at its very genesis, the game creation process itself. By opening Unity to coding agents and providing a command line interface, we've transformed our authoring platform into a fully programmable agentic automation target. We are completely model agnostic, enabling our customers to avoid vendor lock-in and constantly optimize their token spend. And this is exactly where we want to be, at the center of AI-driven game development, connected to everyone, opening up the top of the funnel and maximizing downstream activity on our authoring platform. Over the past quarter, we've experienced a very sharp increase in the use of coding agents on the Unity platform. And not surprisingly, as the power of the tool set becomes easier to access, engagement and satisfaction for existing users is greatly enhanced. But this dynamic attracts new users as well, and Unity's overall daily active user count is already up 25% just since early August. But opening up to Unity coding agents -- opening up Unity coding agents is far from the only initiative we have that's aimed at growing the top of the funnel. At the beginning of October, we also announced our strategic partnership with Google and revealed Unity Spark, a breakthrough browser-based collaborative creation platform that will open game development to new creators all over the world with no prior coding experience required. By pairing intuitive creation tools directly with the rich library of artist-created content in the Unity Asset Store, Spark has the potential to unlock the game developer living inside millions of players, modders and digital artists from around the world, anyone with the talent and patience to iterate on the creation of a real gaming experience. We expect the partnership with Google to be impactful. We're aligned in wanting to provide an upgrade path for the more casual users of their Playground creation product and looking forward to the opportunity to distribute Spark to the billions of users of Google's consumer products worldwide. Spark will be in closed beta this year with a full launch in 2027, and we're excited about its potential to make a meaningful impact on our platform revenues in the years ahead. From our first day together a little over 2 years ago, our team has believed that Unity possessed a generational opportunity and that we can become one of the most consequential companies of the AI era. Nearly 3 billion people play a Unity-powered game each month, and we are still just at the dawn of understanding how impactful our unique role in the content creation flywheel can be and where that opportunity will take us. I'll now pass the call over to Jarrod for a deeper discussion of our financials. Jarrod?

Jarrod Yahes: Thanks, Matt, and good morning, everyone. Unity delivered an incredible third quarter with strategic revenue of $597 million, representing growth of 59% year-over-year. Adjusted EBITDA dramatically exceeded our expectations, growing more than 2x the rate of revenue growth or 134% year-over-year. Strategic Grow is our largest and fastest-growing business with revenue of $432 million, up 90% year-over-year and now represents 69% of total revenues. Growth accelerated dramatically, both quarter-on-quarter and year-over-year driven by Unity Vector. Vector continues to deliver robust compounding performance gains as model optimization, coupled with unique data and product enhancements drove improved performance for our customers. Vector's growth was broad-based across customers, operating systems, campaign types and geographies. Our third quarter Vector outperformance was powered by highly effective model updates, major advancements in infrastructure efficiency and continued robust momentum in our Day 28 ROAS product. Encouragingly, we saw significant new advertiser interest and onboarding. In fact, Vector grew the number of advertiser accounts 27% quarter-on-quarter in the third quarter. In Create, strategic revenue was $165 million, up 11% year-over-year, driven by ARPU growth and strength in China. Profitability was at record levels in the third quarter. Adjusted EBITDA was $257 million with 41% margins, up 1,800 basis points year-over-year. Operating leverage, combined with disciplined expense management were the keys to robust margin expansion. Adjusted gross margins improved in the third quarter by 200 basis points sequentially. This is primarily as a result of leverage in cloud costs that sit in cost of goods sold. Additionally, adjusted R&D, sales and marketing and G&A expenses all came down materially as a percentage of revenue. Operating leverage was further amplified by rigorous ongoing expense discipline. Adjusted R&D, sales and marketing and G&A were all flat to down in dollar terms from the second quarter as well. The third quarter benefited from the strategic actions we took in the first half of the year. Notably, adjusted sales and marketing came down $22 million sequentially and now represents 12% of revenue. This cost reduction was driven primarily by the sale of Supersonic and demonstrates how sharp focus is yielding dramatically faster revenue growth and contributing to materially higher levels of profitability. We are also extraordinarily pleased to report Unity's first quarter of GAAP profitability, delivering $122 million in net income in the third quarter, combined with a 20% net margin. This is our first quarter of GAAP profitability since our IPO and a clear indication of the health and trajectory of our business. Beyond the clear financial milestone this represents, GAAP profitability unlocks significant potential advantages, including prospective eligibility for major equity indices, a broader institutional investor base and long-term credit rating upside potential. The Q3 GAAP profitability is a further sign of the fundamentally different level of operating discipline we are applying at Unity. We expect amortization expenses and stock comp expense as a percentage of revenue to continue to fall and operating leverage to continue to increase. In order to help investors bridge to Unity's net income margins, I note the following modeling assumptions. In the fourth quarter, we expect amortization expenses to step down to $50 million from the $77 million we recognized in the third quarter. Looking ahead to 2027, we anticipate a further step down of amortization expense to $15 million per quarter. And for 2027, we expect stock comp expense of $75 million per quarter and an effective tax rate of 5% to 10%. Free cash flow in the third quarter was a record $220 million, resulting in an ending cash balance of $2.65 billion. We remain disciplined from a capital allocation standpoint and expect to pay off the convertible debt coming due on November 15 with cash on the balance sheet. Our significant cash generation provides us with tremendous flexibility as we think through investments in our product road map, potential M&A and returning capital to shareholders. With that, let's turn to guidance for the fourth quarter. For the fourth quarter, we're guiding to total strategic revenue of $683 million to $691 million, implying year-over-year revenue growth of 65% to 67%. This represents a further acceleration from the record growth rates we saw in the third quarter and would constitute Unity's seventh consecutive quarter of accelerating revenue growth. In Strategic Grow, we expect year-over-year revenue growth of 105% to 107% and our guidance assumes 21% to 23% sequential growth rates for Unity Vector. In Strategic Create, for the fourth quarter, we expect 4% to 6% year-over-year revenue growth. For the full year 2026, Strategic Create is expected to grow by 9% year-over-year, and we expect similar levels of annual growth going forward, driven primarily by improvements in ARPU. Beyond our current business, we expect Unity Spark to tap into a new audience with the potential to drive downstream revenue across both Create and Grow, reinforcing the Unity flywheel. While we have not yet announced Spark pricing, our plan includes a mix of freemium and paid subscriptions, consumption-based revenues and advertising. And lastly, we expect $5 million in non-strategic Grow revenue in the fourth quarter going to 0 in 2027. We're guiding to fourth quarter adjusted EBITDA of $290 million to $295 million, representing 132% to 136% growth year-over-year and a 42% adjusted EBITDA margin. Our margins have continued to reach record highs, with guidance implying another 100 basis points of margin expansion next quarter. Unity is delivering extraordinarily financial results across its entire business. And although we are very pleased, we are not satisfied. The Unity flywheel has started to spin, and we're confident in our team's ability to execute on the clear opportunities ahead of us in the months and years ahead. With that, I'd like to thank you for joining us on Unity's Third Quarter 2026 Conference Call. I'll now turn the call over to Alex so that we can take your questions.

Alex Giaimo: Thanks, Jarrod. Operator, we're now ready for questions.

Operator: [Operator Instructions] Your first question comes from the line of Benjamin Black with Deutsche Bank.

Benjamin Black: So just -- I just want to ask about Vector, right, 40% growth sequentially and nearly twice the guide that you provided last quarter. So just digging a little bit more into the drivers of that outperformance. Was there maybe one particularly big unlock that you identified? And I guess as we look ahead to '27, how should we think about the durability of those trends? And then a second question would be more so on the runtime data that you have, right? If you think about maybe the opportunity to eventually help developers retain and monetize existing players rather than just acquire new ones, how large will that opportunity become relative to UA, or user acquisition? And which investments would you need to sort of unlock that opportunity?

Matthew Bromberg: Ben, thanks so much for the question. So a couple of things. Just to break down to its simplest elements. Vector is an AI prediction engine. So what we're doing is we're doing a better job of predicting which consumers are going to like which games. We're doing a better job valuing those consumers and then matching them with the publisher of the corresponding game. It is really that simple. There is no one silver bullet in this business, as we've discussed before. As I mentioned in my introductory remarks, we think of this business around 3 major pillars: continuous product enhancement. We talked a little bit about the Day 28 product, but that's just one of very many enhancements we make in a typical quarter, and we have lots of product enhancements coming up and a really long road map. So that's product enhancement, continued access to very high-quality and ever higher quality data sets and runtime is a piece of that, which we'll get to in a second. And then also continuous compounding model improvements every day, we optimize and retrain and we take into account both the impact of the product enhancements that have happened and changes in data. And that's a consistent process that we expect to continue to run well into the future. Keep in mind, Vector is still very much in its infancy. We're 7 quarters into this. We have just started. So we don't think about durability in that sense. We think we're just at the outset. Now every quarter is not going to be a 40% quarter, but we're very confident about the healthy levels of growth going forward. And as you all have heard me say many, many times before, the way this business operates is we have incremental solid growth and then occasional step change functions. You probably heard me say that 1,000 times. We know the step change functions are going to happen. We just don't always know exactly when. All of this ultimately is driven by a massive and growing marketing inside mobile games, right? Mobile game advertising opportunity is at least $40 billion, and it's growing double digits. So there are really healthy underlying drivers here as well. And then finally, I would just -- I'd point you to the flywheel we keep talking about. This is critical as you think about the nature of the world and the nature of our business going forward. We are not an ad network. We are an authoring platform. As a consequence, we participate in all phases of this business. And as game creation becomes more efficient and more games get released and more developers make more games, our authoring platform has an opportunity to help publishers deploy and monetize and grow those experiences at scale. And the more games that enter the marketplace, and we've seen that go parabolic, drives the premium of attention. It's harder and harder to find what you want to play and then having robust data set as we do of consumer behavioral understanding helps target those ads. So the whole thing feeds on itself and grows. Now to your second part of your question, the opportunities that are provided by us being an authoring platform, a full authoring platform that helps publishers run and grow their live services as the point you made, Ben, is critical because the game development ecosystem is actually an equation that has 2 sides. And we spend all our time talking about one side, which is, okay, I have a certain LTV, how much money can I go out and spend to drive top line by getting installs, right? We spend all our time thinking about that. And we assume the LTV, right? They say, well, given a certain LTV, how much advertising spend, how much return can I get? And we talk about that. What we don't talk a lot about is what game publishers spend 99% of their time talking about, which is how do I drive LTV up? How do I get engagement up because monetization is a downstream output of engagement. So how do I drive engagement and LTV up such that when it comes time for me to go into the market to find new installs, I can spend more. And each one of the customers I derive and benefit will spend more when they're in my game. And that's where we also have the opportunity to drive value because that game is being built on our platform and it is connected to our runtime. And the runtime provides feedback to the publisher at scale in real time on the behavior of the players inside that game, what they're bored with, what they're interested in, what they'd like to spend. That is a critical and crucial advantage we have. It is a unique advantage that exists nowhere else. That is a critical part of our future. And it's a long-term tactical and strategic moat. We will get more and more sophisticated over time in how we derive value from the runtime. I think the other thing that this conversation often loses is folks think about runtime as sort of a static opportunity and you think about it just based on coverage, what percentage of the runtime are you getting. That's important, but it's not the whole story because we will get better and better at understanding consumer behavior based on that runtime over time. And just the last point I'd make because I did mention the opt-in. Our opt-in around runtime on newly created projects remains over 90%. Of the top 1,000 spenders on Vector, 30% are now sharing runtime data with us, and we expect this number to grow over time.

Operator: Your next question comes from the line of Matthew Cost with Morgan Stanley.

Matthew Cost: Matt, just following up on the point you made in the prepared remarks around most of the growth for Grow and Vector coming from gross spend and delivering better ROAS to your customers as opposed to take rate. How do you think about those 2 drivers of ad revenue growth philosophically? And is there an opportunity for take rate to go up over time? That's the first question. Second question is just on Spark and the partnership with Playground. I guess it sort of ran against the narrative that was out there in the market that basically any of these frontier labs have abilities that basically negate the need for a traditional game engine like Unity. What can Unity do? I guess, if you could rebut that point, what can Unity do that tools native to a Playground can't do?

Matthew Bromberg: Matt, thank you very much for the question. On the -- on your take rate question, I'll just observe it at a high level and Jarrod, you can jump in afterwards if you'd like. We just don't think about take rate. We think about maximizing the value of players so that we can deliver more installs to customers. We don't manage it. It's not a lever that we use. And really, it's no more complicated than that. On Spark, yes, thank you for the question. We're really excited about Spark. And we believe Spark is going to be highly differentiated in the market because it is designed in a fundamentally different way than some of the other things -- some of the other products we're seeing out there. And the fundamental difference is we have no interest in the very casual end of this market. Unity has grown and our DNA comes from professional game developers making high-quality games that can be distributed across any platform. The insight that we have into how games get made and how a high-quality game is built and how we can use tools to help those products be built and then to provide continuous feedback over time from performance of those games based on the runtime. These are unique assets that we have. And that's what we're leaning into. Nobody in the world knows more about how to make video games than we do. We've been doing it for 20 years. And so our goal is not to help people make super casual things that they can share and that people will play for 10 or 20 or 30 seconds and you send it to a friend. And I'm not denigrating that. It's just not what we're about. Spark is a no code browser-based collaborative, and that's super critical because what we -- the view here is that creative people who have creative talent are going to want to get together and build things together, things of very high quality. So the idea is to put the power of the Unity tool, put that to use for creative folks who maybe just aren't strong coders, artists who didn't know how to code or coders who couldn't build art or level designers who had other weaknesses in their skill set. And so the idea is to create real, high-quality work and to connect that to the Unity ecosystem. So we don't see anybody else in this space doing that, and we think we're perfectly positioned to deliver something really meaningful. And the last thing I'd say about it, which is really just a reiteration of a point I made earlier, is that opening up the top of the funnel so that more and more creators can use our authoring platform is at the very heart of our strategy. So when we announced at Unite Seoul a few months ago that we were opening up the Unity platform to coding agents. That was one big step, and we talked about how that's driving both usage and engagement on our platform and also new users. Spark is another really significant effort with a significant and major partnership to help us gain proper distribution that we think will open the platform to millions of new people to create real and distribute real things. And that's how we're thinking about it.

Operator: Your next question comes from the line of Vasily Karasyov with Cannonball.

Vasily Karasyov: My question is for Jarrod. Jarrod, the magnitude of the beat within Unity Vector was quite big and surprising, I would say. Given that, is there any change to your guidance philosophy? Or was this quarter just some anomaly? Can you help us understand this?

Jarrod Yahes: Thanks for the question, Vasily. And your observation is correct. I mean the magnitude of the beat was quite significant as compared to our guidance. The philosophy has remained pretty consistent since Matt and I joined. We go into the quarter. We look at a variety of inputs. We look at the run rates, we look at the seasonality. We look at the expected upcoming model enhancements and product releases. In certain quarters, the third quarter being a prime example of that, there are unforeseen step changes in growth. So this was a significant unforeseen step change in the growth that we experienced. Our objective is always to meet and exceed our guidance, but the magnitude of these beats can be outsized in certain circumstances. We're going to continue to provide guidance based on what we see at the time. And if there are unexpected, unforecast performance gains, those will be significant excesses above our guidance that we provide externally.

Operator: Your next question comes from the line of Alec Brondolo with Wells Fargo.

Alec Brondolo: Maybe I'll ask a 2-parter. I think over the last 2 months, there's definitely been an inflection in and around AI in the gaming category. You're calling it out on this call. I think Roblox spoke to it on their call, some really prominent people in gaming and tech have been writing about it over the last few weeks. Two questions. One, what do you think changed with regards to the capabilities [ of AI ] or the implementation that is enabling greater efficacy in the games category now as opposed to maybe a year or 2 ago when we all discovered that Claude code was going to be great. And then maybe secondly, I think we're all sitting here wondering, well, where does it show up in the numbers? Does it show up first in Create? Does it show up in Grow because you have more potential advertisers now? Any thoughts on where we see the benefit of this inflection in AI in Unity's financials would be great as well.

Matthew Bromberg: Thank you very much for the question. I think that the quality of the models and the quality and kind of dimensionality of the harnesses that folks are learning to build to get the most out of those models are increasing. The quality of the compute is increasing, and we're just going to continue to see efficacy rise in everything that's touching AI. But AI is really, at this point, particularly most advanced and most impactful in coding agents. And so you -- that's where you're seeing the impact there. So that's no surprise to us. I think in our -- as we think about our own business, what I'm really trying to express with the flywheel metaphor is that we see this trend driving all of our business, every piece of it. We see it as the single most important trend that will drive more creators to be able to make more and better games, which will lead to a greater intensity for the need for discovery, which, yes, drives our ad business. But importantly, as I noted, because we're a full authoring platform, the product enhancements that we can offer through our authoring platform to game publishers to help them manage and personalize the experiences that they are offering their players agentically, those opportunities are extraordinary. And back to the first question about the sort of left side of the equation, if you will, in which how do you drive engagement and greater monetization by improving gameplay experience. The combination of a kind of AI-infused runtime-driven, Vector-driven authoring platform, which helps game publishers create more engaging experiences, which create value in dollar terms. Those opportunities are absolutely there for us and absolutely there for the publishers who will also drive our business going forward. And that's sort of why we chose this metaphor of the flywheel. It's not sort of too much of a cliche, but it accurately describes how we see this thing spinning and continuing to pick up pace and continue to accelerate. And we think it will drive not only our own business, but also the entire industry forward. As much impact as this has had already, both in our own business, as you can see from our results this quarter and in previous quarters, but also as much impact as you're seeing, as you rightly point out in our industry, we are just at the dawn of this. There will be brand-new game experiences that are enabled. This is going to drive substantial growth in the video game market over time. And it will be a little bit bumpy in the beginning as it relates to -- as developers get comfortable with these tools, as we continue to build out our tools to help them, and it will create some dislocation among developers as you are seeing. But make no mistake, this is going to drive our industry forward many, many years into the future. We're really excited about it, and we are already seeing all of these -- the beginnings of all these impacts in our business.

Operator: Your next question comes from the line of Brent Thill with Jefferies.

Brent Thill: Great. I know you mentioned you're not thinking about durability, but can you think about the predictability and visibility you have into the next quarters given the success you just saw?

Matthew Bromberg: Yes. And just to make sure I didn't misspeak, it's not that I think durability is bad. I think durability is good, and we expect there to be a tremendous amount of durability. I'm just not worried about it. And I'm not worried about it because I can see every day the road map that our team has in front of it and that we're executing against. And we guided to 20% and delivered 40%. We enhanced that guide and pushed it up to 23%. We did that because we see progress in front of us. We see opportunity. And because part of what we're seeing as we gain scale in this business is that success begets success. And so as we have effectively, to my eye, an endless product enhancement road map, our ability to optimize models against those inputs gets better and better and more efficient. Our infrastructure use gets more efficient, which enables better optimization and the long-term strategic moat that we have around understanding the 3 billion consumers who play Made with Unity game to drive all of it is, just as I've said, I believe, a generational opportunity. And again, I would just -- I'd add because I know it's sometimes hard to keep in mind, this is a product which is 7 quarters into its lifespan. So when I say we feel like we're just at the beginning, we really do. I mean, we see tremendous opportunity in continuing to build out and drive this.

Jarrod Yahes: Just to add to what Matt said, Brent, Matt made a comment that success begets success. And one of the things we mentioned in our prepared remarks was that there was a 27% increase in new advertisers advertising on Vector in the quarter. And that 27% is not a year-on-year increase in new advertisers. That's a quarter-on-quarter sequential increase in one single quarter in new advertisers. What I'd also add is that 90% of the growth that we experienced in the quarter was from existing advertisers. And so those new advertisers who came on board have just started to spend with us, and we expect that, that's a growth tailwind that we'll get. It's just another example of that virtuous cycle that takes place when you're delivering ROAS to customers. New customers come on board, they test, they experiment, they spend. When they see those results validated, they spend more. And so we're really pleased to see that the existing customers are driving the significant majority of the growth, but we're also very excited to see a large number of new advertisers come to us, test and experiment and see the value that Vector can provide.

Operator: Your next question comes from the line of Clark Lampen with BTIG.

William Lampen: Continuing string of technical problems during Q&A on these calls. Matt, you made an interesting comment around -- yes, one of these days, I guess, maybe next quarter. Matt, you made, as I read it, I think, a fairly constructive comment around the pipeline in answering Ben's initial question. And I think Grow leadership may have teased 1 or 2 of these products recently during a podcast. But I'm curious if you'd be willing to, maybe, number one, share a little bit more detail around what's in development and what you think can be impactful. And I guess, second, from our perspective, how we should think about contributing, I guess, not to come back to this point on durability, but how this could contribute eventually, I guess, to the durability of what we're seeing is really elevated Vector growth right now in 2027 and beyond. I hope the question makes sense.

Matthew Bromberg: Yes. Thank you, Clark. It makes sense. I hesitate to read out the list of product enhancements that we have planned, both because there are competitive issues associated with it. And obviously, we want to communicate with customers before we roll them out before we talk about them publicly, but also because I don't know that there's any analytical probity in anchoring on any one of them. In a given quarter, we might have 6, depending on the quarter, 10 significant changes to the product. And again, if we think about the Day 28 offering, which is now about a quarter old, that is a kind of -- we view as a fundamental table stakes product, right? You can't expect to be a player at scale without a product like that. And it was just -- it just took us -- because the product is so new, it took us a while to get there. But the point is that there are still -- there's still a really long list of fundamental changes like that, that are there for us and that are going to be as impactful as Day 28 has been. And we're just excited at a high level about the opportunity to partner with publishers to help drive their business. We are deep committed participants in this industry. It matters to us that we do well. It's partially why we're so excited about being able to deliver all this value. And again, I think being just at the very start of this. And so I just -- to your point, we -- our folks do sometimes do podcasts and maybe I should tell them to stop. But I think the best thing -- the best way to think about our business is to think about flywheel, to think about our ability to optimize both sides of that equation and to think about the long-term durable value of 3 billion consumers playing games and us getting ever enhanced sense of what that in-game behavior is and how we can help publishers create better products as a consequence of being connected to those players. That's why when I go -- when I start to talk about the business, I lean less around, hey, let me read you out a list of stuff we're going to do next quarter. And I'm pulling the camera back just slightly to focus you on the scale and size of the opportunity, not because I'm trying to be obtuse, but because I want you to see what we see, an enormous marketplace of billions of players worldwide who love to play, will always love to play at the dawn of an era, which is about to give them play experiences that are going to blow their minds, play experiences that are driven by consumer behavior and AI and the genius of the humans who create those experiences. And we're sitting right in the middle of that opportunity, and we just -- we couldn't be more excited about it.

William Lampen: I don't know if I vote, but the podcasts are great.

Matthew Bromberg: I'm not going to stop.

Operator: Your next question comes from the line of Eric Sheridan with Goldman Sachs.

Eric Sheridan: Maybe building on some of the comments around the Google partnership. Maybe just 2, if I could. One, how should we be thinking about the unit economics of that partnership, especially on the compute side of the equation and what that might mean in terms of incremental margins for your business if it scales beyond closed beta into much wider release. And based on what I read on the closed beta, how are we thinking about some of the frictions that have to be removed from closed beta to something wider in 2027 to broaden out the potential for distribution of creations made through the partnership?

Matthew Bromberg: Now let me offer a couple of introductory remarks and then Jarrod, I'm sure we will follow up. Yes. Thank you, Eric. There's a lot in there. So we're going to be in beta very shortly. And -- we haven't announced the pricing and the model of Spark, but it is going to be a mixture of subscription and advertising and some kind of a la carte purchasing. And so I was going to imagine a model in which you begin to play, you begin to build, it's free. And then at some point, you may hit a wall in which we ask you to engage with us in some way. Those -- but that's just a very high-level idea. Those levers will all be tweaked as we're in beta as we see the number of -- the amount of compute that folks need to create great experiences and where are the best and most optimal way is most satisfying way to engage those creators. So we will figure that out over time. As it relates to that, the friction you described around distribution, I really appreciate you asking that because it's something we probably don't talk that much about. That friction is quite literally one of the founding reasons that Unity exists. We are the only engine in the world that can allow you to build once and then seamlessly in a high-performance way, distribute that experience across 25-plus platforms, right? Consoles, high-powered mobile phones, low-powered mobile phones, web, what have you. That is at the heart of the value proposition of Unity. It has always been at the heart. And so we feel really good about that being a really good example of an opportunity we have to deliver a seamless experience to folks that many others will struggle to deliver at the quality that we will deliver.

Jarrod Yahes: A couple of things I would add to that, Eric, just on Unity Spark and the monetization model. As Matt laid out, we do expect to start with a freemium model. There will be a daily allocation. We're going to encourage people to create the experiences of their dreams. There are opportunities for consumption-based revenue streams on top of that as well as advertising opportunities. Those advertising opportunities are going to be outside of the mediated ecosystem, effectively allowing us a pathway for owned and operated ad inventory, which is a new tremendous opportunity for Unity that we're extremely excited about. There are 2 levers for monetization that I'm not quite sure everyone understands. The first is that -- we have the unique ability to use data in the creation process to optimize token costs. Every prompt that is undertaken, every query that is undertaken is ingested by us and can be used to train models, fine-tune and optimize those models in order to decrease the cost of creation going forward. So that's a virtuous cycle that taken at scale is going to allow us to create the most cost-effective creation model that should exist out there. The second piece that I would point out is the Unity Asset Store is the largest asset store of its type. It is a unique and extraordinarily valuable asset. To the extent that there are assets, and these are artist-created assets that exist on the Unity Asset Store that are owned and operated assets that are used as part of the consumption process, that is 100% flow-through margin to Unity. So that's an extremely attractive opportunity for Unity. We may use that for consumption-based revenues. We may use that to upsell from a freemium to a subscription product. And moreover, to the extent that there are artist-owned assets that are sold, that's also incremental flow-through margin for Unity. So I think our ability to optimize token costs in a unique fashion, our ability to leverage the asset store with a combination model of freemium, consumption-based and advertising really makes this an extraordinarily attractive opportunity for us as we think about scaling and growing Spark in the years to come.

Matthew Bromberg: Yes. That's really well said. I would just add one more piece in case it's not clear that although we're really absolutely thrilled and excited to be partnered with Google on this, it is ultimately a nonexclusive partnership. So you, over time, will see Unity Spark distributed everywhere. And the opportunity over time we think is...

Operator: Your next question comes from the line of Dylan Becker with William Blair.

Dylan Becker: Maybe 2 quick ones. And I think you kind of called this out, Matt, to start with you. But I think you said top of funnel usage from daily users is up 25%. And Jarrod, I think, you said new advertisers on the platform is up 27%. It's probably too early to tie those 2 together, but maybe of that new daily user cohort, what are you seeing from a propensity to turn on monetization after they've kind of started to toy around with the idea of creation? And then -- I'll start there. I'll do that, and I'll ask a follow-up.

Matthew Bromberg: Okay. Thanks, Dylan. Sorry to interrupt. Yes, those are 2 separate numbers. So I wouldn't dare to chain them together. But I would say this, and this is a really important concept. So I'm pleased that you asked the question. What are the really interesting downstream impacts of shifting into a world in which the Unity authoring platform is very frequently agentically controlled, right, where games are being built around the command line interface, around the prompt is that, in the past, if you were building a game with Unity, you would, of course, download Unity and you do all sorts of things, you learn Unity and then you begin building a game. When it came time to partner with an ad network, or decide, hey, I'd like to sell ads in my game or gee, I need to buy some installs, right? You then go back on the Internet, you do some research, you'd say, oh, there's Vector. I'm going to go again, I'm going to download that SDK, let me download the documentation around it. Let me install that on Unity. And let me go down the road and figure out how that works. So that was the old world. In the new world, you say, hey, I want to build a game, great. We're going to build it on Unity. All the Unity services, including Vector and others are bound instantly at the moment of creation without you downloading or reading or any of the friction that used to happen in the old model, including, by the way, downloading Unity. So part of the reason we're so excited about this new -- the new metaphor of creation is that because we offer a full platform and services and having those integrated in that first instance is going to be of enormous value, both to the creator and over time to Unity. And so we do see those dynamics already playing out. We absolutely see them playing out in our business already. But it's just going to become more intense because we're at such an early stage.

Dylan Becker: Got it. Okay. Perfect. That's helpful, Matt. And then going back to kind of the asset store piece as well, too. If Spark obviously helps accelerate collaboration, bringing more creators into the ecosystem, democratizes development as we've talked about, I guess, just how you're thinking about the asset store as helping kind of balance that mix between quality of content as well as volume of content.

Matthew Bromberg: Yes. It's really important to us that we respect and do everything we can to respect and enhance the human element of game creation. And there is a meaningful and significant backlash against AI-created art. And the issues associated with it are not just sort of psychological or political, if you will, but also have to do with the sort of genericization that happens when sort of models give you the median of what things look like. And part of the consumer reaction that you see and part of the reason why there really aren't, at least to my knowledge, any particularly successful games that are obviously tied to this kind of genericized art and experience is that like consumers don't react well to it. So all this is really important to us. And we're a company that was built on the centrality and the importance and dignity of the creator. What the Unity Asset Store allows us to do uniquely because as Jarrod pointed out earlier, it is by far the largest source of artist-created art in the world, and we're going to be able to integrate it directly and deeply into Spark, just as it's integrated into the current Unity ecosystem, is we think is what it will do is help creators build better, more appealing product. Remember that the whole point here is to create great games. All the opportunities that happen downstream for creators and for Unity and for everybody in the ecosystem happen as a consequence of building incredible experiences that consumers love. That's the thing that we want to be a part of. And if we can bring unique assets like the asset -- like our asset store into that process, then we feel really good about it.

Operator: Your final question comes from the line of Bernard McTernan with Needham.

Bernard McTernan: Great. Matt, you mentioned a couple of times on the call, 3 billion consumers with you have supply. Basically, I wanted to ask like, do you have enough supply to keep the strong growth going? Are you seeing any impact on no-code games right now impacting that supply and maybe how you expect Spark to impact that next year? And then just a follow-up on a comment that Jarrod made about the owned and operated inventory with Spark. Can you just detail what the implication of that is versus access to other supply?

Matthew Bromberg: Yes. So just to be clear about the statistic, 3 billion is the number of individual consumers in a month that are playing a Made with Unity game. So I wouldn't confuse that with supply if you're thinking about that as related to advertising inventory. So just a clarification for you there. The number of creators that are coming to our platform and the intensity of the use of our platform and the growth of the platform are all up and to the right for us. So all of the dynamics that I've described are creating meaningful growth for Unity. And that was the anchor that I mentioned in the in my prepared remarks around our DAU for our Creator DAU being up 25% just since August, which is when we opened Unity to coding agents. We expect that dynamic to accelerate. And to Jarrod's earlier points and to some of the earlier questions around Spark, the idea of bringing completely new set of potentially millions of new creators into that ecosystem through Unity Spark, we think will be meaningful. And we think in the future, we can satisfy both our professional audience and an audience of creators that are going to create new and different things that is 10 or 20 or 30x as large as the audience of professional creators. They're going to create different things. It's going to be a different experience, but it's going to be a bigger experience, and we're going to be at the center of all of it.

Operator: This concludes the question-and-answer session. I will now turn the call back to Alex for closing remarks.

Alex Giaimo: Thanks, everyone. Have a great day.