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Microsoft has released their earnings for the quarter ending December 31, 2022 (their fiscal year runs from July 1 until the end of June the next year) and it wasn’t the strong result you’re used to seeing from the company. Overall revenue was $52.7 billion, up 2 percent year-on-year, but net income was $16.4 billion, down 12 percent year-on-year. The middling results were due to a number of factors, most notably falling Windows OEM and device revenue. That said, the Xbox division’s Q2 FY2023 results were nothing to brag about.
Microsoft’s overall Gaming revenue was down 13 percent year-on-year, due to a 13 percent decrease in Xbox hardware revenue and a 12 percent decrease in Xbox content and services revenue. Microsoft claims the decline in gaming content revenue was due to a lack of first-party content and lower third-party sales. That’s fair enough, as the previous Q2 saw the release of Halo Infinite, while this Q2 Microsoft’s big game was… Pentiment. A great game, but not exactly in the same league as Master Chief.
The decline in hardware sales is less easy to explain away. Last year, the Xbox Series X and S were still supply constrained, while this year they were in relatively plentiful supply. In fact, the Xbox Series S was the only current-gen console to offer any significant discounts during the big holiday shopping season. Those discounts didn’t manage to propel the Xbox Series S to a holiday victory – the Nintendo Switch and PlayStation 5 still beat it handily – or even above Xbox Series sales from last year.
The silver lining in all of this is that Microsoft’s Game Pass service continues to grow, although the company did not provide specific subscriber numbers. Game Pass has been pushed heavily by Microsoft in recent years, and while the service continues to grow, it fell short of targets in 2022. Xbox boss Phil Spencer has also admitted Game Pass will likely never account for more than 10 to 15 percent of their gaming business. As today’s results show, if Xbox hardware and traditional game sales are down, Game Pass isn’t enough to right the ship. In that vein, during Microsoft’s earnings call, CFO Amy Hood said Xbox content would likely be down in the “low single digits” again next quarter, as Game Pass growth can’t make up for declining live service revenue from first and third-party titles.
Last week Microsoft announced they were cutting 10,000 jobs, with the Xbox division feeling the effects. In particular, Halo developer 343 Industries is said have been “hit hard.” Of course, Microsoft is also in the process of trying to purchase Activision Blizzard for $69 billion dollars, although that deal is facing challenges from regulators.
What are your thoughts on the current state of affairs at Xbox? What can Microsoft’s Gaming division do to turn their fortunes around?
