Unity reports second-quarter 2026 results on August 5, 2026. It goes in with the largest Rule of 40 improvement of any company this site covers in the two sectors the metric is built for: −3.83 to 29.77 in a year.
It also goes in on a quarter where gross margin was 30.81% and diluted loss per share was $0.80. Those are the same three months, out of the same 10-Q, and the score does not contain either number.
The recovery, and how big it is against its own sector
Score change over the last year, bounded to Enterprise SaaS and Networking & Security — the profile our explainer says the metric actually describes:
| ticker | a year earlier | latest | change |
|---|---|---|---|
| U | −3.8 | 29.8 | +33.6 |
| PANW | 39.8 | 57.4 | +17.6 |
| CRWD | 45.1 | 59.5 | +14.4 |
| SHOP | 40.3 | 51.7 | +11.3 |
| DDOG | 59.1 | 64.2 | +5.1 |
| CRM | 71.7 | 72.2 | +0.5 |
| NOW | 66.3 | 62.6 | −3.7 |
| CSCO | 38.2 | 33.1 | −5.2 |
Each row compares a company's latest quarter with the same quarter a year earlier — for CSCO that is FY2026 Q3 against FY2025 Q3. The comparison is deliberately not widened past these two sectors: the corpus holds larger swings, and most of them are cyclical businesses the formula was never meant to grade.
One name is missing and a reader checking a superlative will look for it. Palantir sits in Enterprise SaaS and would be the runner-up, but its cash-flow series stops at 2024 Q4, so any score for it compares a two-year-old cash half against a current growth half — we published that problem in full on August 1. It is out of the table because it cannot be scored on the same vintage as the rest, not because of where it would land.
Underneath Unity's number is a genuine turn. Year-over-year revenue growth across six quarters: −24.96% → −5.43% → −1.78% → +5.37% → +10.07% → +16.78%. Revenue has risen four quarters running, $435M → $441M → $471M → $503M → $508M. The score's cash half moved with it: free cash flow was $7M in the March 2025 quarter and $66M in the March 2026 quarter, which is 1.6% of revenue against 13.0%.
- 2025 Q1: −5.435 growth + 1.609 cash = −3.826
- 2026 Q1: +16.782 growth + 12.992 cash = 29.774
Every addition in this piece carries three decimals, because at two the rounded halves stop adding to the rounded total: −5.43 and 1.61 make −3.82, against a true −3.826. Those figures come from this site's stored series, which holds revenue in whole millions; on the filing's unrounded dollars the same arithmetic gives 16.836 + 13.076 = 29.912. A rounding gap, not a disagreement — but the basis is worth naming, because the two numbers are both defensible and only one of them is what the site displays.
Ten points short of 40 is a recovery, not a pending crossing. The size of the move is the story here, not the level.
The other half of the same quarter
| quarter ended March 31 | 2026 | 2025 | change |
|---|---|---|---|
| Revenue | $508.24M | $435.00M | +$73.24M |
| Cost of revenue | $351.64M | $113.96M | +$237.68M |
| Gross profit | $156.60M | $321.04M | −$164.44M |
| Gross margin | 30.81% | 73.80% | −42.99 |
| Diluted loss per share | $0.80 | $0.19 | — |
The dollar rows carry two decimals for the same reason the score does: at one, the change column stops reconciling with itself — $73.2M less $237.7M is −$164.5M, while gross profit actually moved −$164.4M. At two, every row subtracts both down and across.
Revenue moved $73 million. Cost of revenue moved $238 million, more than three times as far, in the wrong direction. The sequential comparison has the same shape — cost of revenue was roughly $129.2M in the December 2025 quarter, taking the full year less the first nine months, since Unity tags no discrete fourth quarter.
Gross margins above are computed from the filed income statements, revenue less cost of revenue. The site's stored series agrees to within about a tenth of a point on both quarters, and matches 30.81% exactly.
Why the score did not move with it
The Rule of 40 adds revenue growth to free-cash-flow margin. Neither term contains cost of revenue, gross profit, or net income. Unity's best score in years and its worst gross margin on record are not in tension; they are two different questions asked of the same quarter, and the formula only asks one of them.
The impairment that took gross margin down is non-cash, so it did not touch operating cash flow — $71.3M for the quarter, against capital expenditure of $4.8M. The cash half of the score went up in the quarter the income statement fell apart.
What the filing says caused it
This is the part worth reading before drawing conclusions, because an impairment, a settlement and a reclassification would each imply a different company. Unity's 10-Q states it plainly:
Cost of revenue for the three months ended March 31, 2026 increased, compared to the comparable prior year period, due to an impairment of long-lived intangible assets in the first quarter of 2026, associated with the sunsetting of the ironSource Ads Network, and planned divestiture of our Supersonic game publishing services.
The charge was $279 million, of which $227 million sits inside cost of revenue and $47 million in sales and marketing. Take that $227 million out and cost of revenue for the quarter is about $125 million on $508 million of revenue — a gross margin near 75%, which is where Unity's trailing quarters sit.
So on the filing's own numbers, this reads as a charge rather than a changed cost base. That is the reading to test on Tuesday, not to assume.
What to watch on August 5
Gross margin is the single question. Back to the mid-70s and the 30.81% was a one-quarter charge that the site's chart will carry for the next three years. Anywhere in the 60s and something in the cost base moved with it. Unity's own risk disclosure names a candidate: its AI investments and related spending "may adversely impact our cost of revenue, research and development expenses, and sales and marketing expenses, which may, in turn, negatively impact our gross margins and operating margins."
The ironSource wind-down lands in this quarter. The ad network was sunset effective April 30, 2026, so Q2 is the first quarter almost entirely without it. Non-strategic revenue — mostly ironSource plus Supersonic — was $75.8M in Q1 2026 against $114.8M a year earlier, and it is on its way to zero.
Guidance already shows what that costs. Unity guided Q2 total revenue to $505M–$515M, essentially flat against the $508.2M just reported, while guiding strategic revenue to $455M–$465M, up 29–32% year over year. The gap between those two lines is the wind-down, and this is the quarter it is widest.
The score's growth half will come down. At the midpoint of guidance, $510M against $440.9M a year earlier is about 15.7% growth, roughly a point below this quarter's 16.78%. Holding near 29 therefore needs the cash half to stay around 13% of revenue — on adjusted EBITDA guided to $130M–$135M against $138M delivered in Q1.
Management has put a date on profitability. The Q1 release states an expectation of GAAP profitability by the fourth quarter of 2026. That is two prints away and it is now on the record.
Unity was last covered here in February, when it beat on Q4 2025 and the stock fell 34% on guidance. The shape of Tuesday is similar: the numbers that decide the reaction are not the ones the headline will lead with.
Rule of 40 scores, the peer table and the revenue series are computed from every company we track on this site's house definition — year-over-year revenue growth plus free-cash-flow margin, where free cash flow is operating cash flow less capital expenditure — as set out in our explainer. Unity's dollar figures, gross margins and the impairment breakdown are from SEC filings for CIK 0001810806: the 10-Q for the quarter ended 2026-03-31, accession 0001810806-26-000032, and Exhibit 99.1 to the 8-K filed 2026-05-07, accession 0001810806-26-000030, which carries the Q2 2026 guidance and the free-cash-flow reconciliation ($71,286K operating cash flow less $4,829K of property and equipment purchases). The August 5, 2026 report date is confirmed in our stored Unity data, quarter 2026 Q2 ending 2026-06-30. No live price, valuation, rating or price-target figure appears above; the 34% move in the closing paragraph describes our February coverage rather than a current quote.