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Microsoft has just reported its earnings for Q4 2023 (unusually, their fiscal year runs from July 1 to June 30) and it was a bit of a mixed report card for the company’s Xbox division. The gaming division results improved by a razor-thin margin year-on-year, with revenue being up 1 percent, which was below Microsoft’s expectations.
The lower-than-expected growth can largely be blamed on Xbox Series X/S console sales, which were down 13 percent year-on-year. Sales of the Xbox Series X/S have been down year-on-year for several quarters in a row at this point, as Microsoft’s next-gen console just can’t seem to pick up momentum against Nintendo’s Switch and Sony’s PS5. Microsoft’s Amy Hood also admitted that first and third-party game sales were weaker than expected for the quarter. While it’s unclear what third-party games may have underperformed, the first-party game was almost certainly Redfall, which was released in May to withering reviews.
That said, as mentioned, gaming revenue was still up 1 percent, driven by a 5 percent year-on-year increase in Xbox content and services revenue. Given we know first and third-party game sales were down, that means the increase almost certainly came from one source – Xbox Game Pass. While Microsoft declined to supply subscriber numbers, according to Hood, hours played on Game Pass in Q4 were up 22 percent year-on-year. Microsoft has been making some moves to increase Game Pass subscribers and revenue recently, including bringing back their classic $1 subscription deal for new users, folding Xbox Live into the service as “Game Pass Core,” and boosting the price of subscriptions.
Looking ahead, Microsoft seems cautiously optimistic about the future of the Xbox division. Per Amy Hood, the company is expecting “mid-single-digit” revenue growth and “mid-to-high-single-digit” content revenue growth in fiscal year 2024. Undoubtedly, the hope is that Starfield will contribute heavily to those numbers. Of course, Microsoft’s gaming division will look very different if and when they acquire Activision Blizzard, but it seems they’re not counting those chickens quite yet.
What do you think about the current state of Xbox? Where will the division be in a year or two?
