Unity Software: finally, the long-awaited turnaround?

Unity Software has long been a case study of mismanaged potential and unmitigated value destruction. As the dominant platform for creating real-time 3D content—with its flagship Unity Editor powering more than 60% of mobile games—and as the operator of a sizable mobile ad network, Unity once appeared uniquely positioned to capture both creative and monetisation value in the mobile gaming ecosystem. Yet the past few years have been a disaster for shareholders, with the stock price plummeting from an all-time high of $201 to a low of $14. Today, under an entirely new management team, Unity is attempting a dramatic turnaround with a renewed focus on its ad network business—a reset that we believe is the key to unlocking long-term growth.

An end-to-end platform for developers

At its core, Unity is built around two synergistic segments. The first, Create Solutions, centres on the Unity Editor, a widely used game engine that offers developers a flexible, cross-platform tool for building interactive 3D experiences. Not only does the engine underpin the majority of mobile games, but it also finds applications in sectors ranging from aerospace and automotive to manufacturing and retail. Through a freemium, tiered seat-based model, Unity monetises its engine by converting a fraction of its vast userbase of more than one million monthly active developers into paying subscribers.

The second segment, Grow Solutions, encompasses Unity’s mobile ad network. Formerly known as Operate, this business connects app publishers seeking to monetise via advertising with developers and studios looking to acquire users for their apps, predominantly mobile games. With a spread-based revenue model that typically earns a 20% to 30% take rate on ad spend, Grow Solutions is positioned to grow in step with a developer’s success. In a market where user acquisition and ad performance have become the currency of success, the ad network represents a high-margin opportunity that could ultimately offset the challenges facing the dominant but mature game engine business.

A history of mismanagement and headwinds

Despite its enviable strategic positioning, Unity’s journey over the past several years has been marred by a series of operational and strategic missteps. The company’s growth, which once exceeded 40% annually, not only stalled but reversed to a -17% decline in 2024. Much of this decline can be attributed to a confluence of factors.

A major unforced error was the infamous Runtime Fee debacle. In a bid to capture a larger slice of the mobile gaming revenue pie, then-CEO John Riccitiello introduced a per-install fee in September 2023 in a move intended to capture a “fair share” of the industry economics enabled by the Unity Editor. Instead, the unilateral and retroactive change sparked widespread industry backlash. Developers decried the fee for the lack of industry consultation and the potential for crippling costs, leading to an erosion of trust that had been painstakingly built over two decades. The fee was quickly scaled back and capped, but the damage to the company’s reputation was already done.

In parallel, the gaming market itself was undergoing significant changes. The video gaming industry (including mobile gaming) rode the pandemic boom in 2020 and 2021 but was hit hard by a post-COVID hangover, which led to widespread industry layoffs and studio closures.

On top of that, the implementation of Apple’s App Tracking Transparency (ATT) and deprecation of the IDFA created severe headwinds for ad networks. Although Unity initially downplayed the impact—forecasting only a modest revenue hit—the reality was far harsher. It turned out that Unity’s disparate repositories of first-party data were less integrated or valuable than management portrayed them to be, and its ad targeting relied heavily on user identifiers that were no longer viable in the post-ATT world.

Moreover, misdirected investments in non-core areas, such as the costly but ultimately fruitless acquisition of Weta Digital, further diluted Unity’s focus. The company’s R&D spending ballooned without delivering corresponding improvements, while its inability to properly integrate strategic acquisitions like ironSource compounded the challenges. The net effect of these missteps was a decline not only in investor sentiment but also in the company’s competitive positioning in both its engine and ad network businesses.

Hitting the reset button

Recognising that fundamental changes were required to arrest the downward spiral, Unity ushered in an entirely new management team. At the helm is CEO Matt Bromberg, who joined in May 2024 after a long tenure in mobile gaming operations at Zynga. Unlike his predecessor, Bromberg is an operational leader, focused on execution, accountability, and rebuilding trust with developers and advertisers alike.

One of Bromberg’s first actions was to scrap the contentious Runtime Fee altogether. Instead, he opted to keep Unity’s per-seat subscription model while instituting measured price increases on its Pro and Enterprise plans. This not only put the Create segment on more a sustainable revenue footing but also led customers to reengage with Unity again. By reversing a decision that had generated widespread PR damage, the new leadership sought to restore confidence both within the industry and among shareholders.

Central to the reset has been a comprehensive rebuild of Unity’s data infrastructure and machine learning algorithms that underpin its ad network. Prior management had long neglected the monetisation side of the business, allowing competitors like AppLovin to surge ahead with more sophisticated mediation and targeting capabilities. Recognising this shortfall, the new team has prioritised an overhaul of the ad tech stack. The aim is to better harness the unique data collected from Unity’s vast ecosystem of developers and in-game interactions, thereby enabling more accurate and context-rich ad targeting.

In practical terms, this means consolidating previously siloed data from Unity Editor, Unity Ads and the ironSource acquisition into a unified platform. The ground-up rebuild is intended to provide a single, robust data stream that can inform real-time bidding and targeting decisions. One key component of this strategy is the revamped mediation solution, Unity LevelPlay, which is being repositioned to better compete with AppLovin’s dominant MAX mediation platform. With a more integrated approach, Unity hopes to recapture a larger share of the mobile gaming user acquisition market, which we estimate to be north of US$30 billion in size.

Under Bromberg’s leadership, the focus is no longer on chasing revenue through fee structure innovation or speculative ventures into the broader entertainment industry on the game engine side. Instead, the emphasis is squarely on building an ad network that is finally competitive with AppLovin. We note this does not mean Unity Ads needs to be better than AppLovin; it just needs to deliver user acquisition results that are good enough for advertisers to resume allocating higher incremental budgets to Unity. After all, game developers recently experienced an attempt to exercise monopoly power on the game engine side. We believe it is unlikely that they would encourage a monopoly (AppLovin) to develop on the advertising side as well.

Looking ahead

Ultimately, the strategy reset acknowledges that while the Unity Editor remains a critical asset, the engine’s mature market position offers limited upside. It is the ad network, with its far greater growth potential and margin expansion, that must drive the turnaround. By realigning priorities and investing in the technologies and talent needed to more effectively compete in user acquisition, Unity’s new management is betting that operational excellence and data-driven improvements to its ad network will gradually close the competitive gap.

We see signs of progress emerging already. Unity recently reported full year results, and while its Q1 2025 guidance was underwhelming, management highlighted that the migration to Unity Vector—the new models underpinning Unity Ads—will commence at the end of the quarter, ahead of the prior mid-2025 schedule. The company also laid out a sensible plan for iterative improvement: first improving the conversion models to deliver better results for advertisers, then improving the targeting algorithms to show users more relevant ads, and finally improving the bidding models to win ad auctions more effectively.

The market clearly liked what it heard, sending the stock up 30% on the day despite the significant Q1 guidance miss. We believe it is still very early days for Unity’s ad network turnaround and the company is yet to show actual results with real advertiser dollars. However, the prospect of another AppLovin-like run—which has increased seven-fold over the past year—is starting to get investors excited.