Xbox Content and Services Revenue up Sharply, Hardware Sales Down

The trend from last quarter continues at Microsoft. Revenues from Xbox Content and Services are up significantly thanks to the acquisition of Activision Blizzard, while Xbox hardware sales are down. This is expected to continue.

Microsoft has released its fourth quarter (April to June 2024) and full year (July 2023 to June 2024) earnings report. The gaming segment generated $21.5 Billion, or about €19.9 billion, in revenue during the fiscal year, an increase of nearly 39 per cent over the previous year. Xbox content and services revenue grew 50 per cent year-over-year, with Activision Blizzard contributing 39 per cent. Xbox hardware revenue decreased 13 per cent. Activision Blizzard contributed revenues of $5.7 Billion (€5.3 billion) and an operating loss of $1.4 billion (€1.3 billion) due to various post-merger related costs.

Fourth quarter revenues were approximately $5 Billion (€4.6 billion), up 44 per cent year-on-year, including 48 points of net impact from the Activision Blizzard acquisition. The growth rates are due to the acquisition of Activision Blizzard; excluding this contribution, gaming revenue would have declined four per cent in the fourth quarter. While Xbox Content and Services revenue increased 61 per cent (including 58 points from Activision Blizzard), Xbox hardware revenue decreased 42 per cent, mainly due to fewer Xbox consoles sold. CFO Amy Hood: "Xbox content and services revenue increased 61%, slightly ahead of expectations, with 58 points of net impact from the Activision acquisition. Stronger-than-expected performance in first-party content was partially offset by third-party content performance."

In the earnings call, CEO Satya Nadella said that Microsoft has more than 500 million monthly active users across platforms and devices. "And our content pipeline has never been stronger", he said. "Finally, we are bringing our IP to new audiences. Fallout, for example, made its debut as a TV show on Amazon Prime this quarter. It was the second most watched title on the platform ever, and hours played on Game Pass for Fallout franchise increased nearly 5X quarter-over-quarter."

Amy Hood provides the following outlook: "And in Gaming, we expect revenue growth in the mid-30s, including approximately 40 points of net impact from the Activision acquisition. We expect Xbox content and services revenue growth in the low to mid-50s, driven by the net impact from the Activision acquisition. Hardware revenue will again decline year-over-year."

The Xbox business is part of More Personal Computing. This unit generated revenues of $15.9 billion (+14 per cent; €14.7 billion) for the quarter and $62 billion (+13 per cent; €57.3 billion) for the year. Microsoft as a whole posted revenues of $245.1 billion (+16 per cent; €226.5 billion). Net income increased to $88.1 billion (+22 per cent; €81.4 billion).

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