Xbox hardware revenue fell 42% last quarter, but overall gaming revenue rose 44%

Daniel Sims

Daniel Sims

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The big picture: Some analysts predicted the Xbox Series X would outsell the PlayStation 5 in 2020. Instead, Sony's console has likely sold more than double the Xbox Series S and X. The situation is so dire that Microsoft hasn't disclosed precise unit sales in over a year and has begun releasing its games on competing consoles. The company's latest earnings call certainly won't improve investor outlook concerning the future of Xbox hardware.

Xbox console sales suffered a staggering year-over-year decline during the quarter ending June 30. The situation regarding Xbox hardware has been dire for a while, but Microsoft's larger gaming business has performed well.

Although revenue from Xbox hardware decreased by 42 percent compared to the same quarter last year, general gaming revenue increased by 44 percent. Moreover, revenue from Xbox content and services rose by 61 percent. Microsoft didn't specify what that number encompasses, but it likely aggregates Xbox software, Game Pass subscriptions, PC games sold through Microsoft's storefront, and games the company published on all platforms.

Source: App Economy Insights

Microsoft said its $69 billion acquisition of Activision Blizzard significantly impacted gaming financials, including first-party titles that performed above expectations. Since the purchase, revenue from games like Call of Duty, Diablo, Overwatch 2, and Candy Crush Saga has contributed to the company's bottom line. Conversely, third-party software revenue was weak, but Microsoft didn't elaborate on that area.

The company expects the trends it reported to generally continue into the next quarter, with overall gaming revenue rising by over 30 percent. Xbox content and services could grow by over 50 percent, but Microsoft predicts that console hardware sales will keep falling.

Solid Xbox unit sales numbers haven't emerged since last year when the console manufacturer confirmed that Series S and X had sold over 21 million combined. In comparison, Sony has sold around 56 million PlayStation 5 consoles as of the end of April 2024. Meanwhile, Nintendo has sold 141 million Switch units, though it has been on the market for nearly three years longer than the Sony and Microsoft machines.

A healthy outlook for gaming revenue despite struggles with hardware sales suggests that Microsoft's hardware-agnostic strategy is working. The company has focused on offering games on various hardware platforms and over the cloud. Despite de-emphasizing Xbox hardware somewhat, ambitious plans for a successor to the console are in the works.

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Xbox hardware revenue fell 42% last quarter, but overall gaming revenue rose 44%

 
winjer said:
Gaming rose by 44% because of the Activision deal. That accounts for 38%.
Without it, the is almost stagnant.
Click to expand...

Solid point.

But again highlights that Microsoft should just focus on SW; it's HW, outside of the 360/PS3 era, has been a drag on the rest of the unit [and you can argue that was more due to missteps by Sony rather then by anything Microsoft did].
 
So let's get the straight.

Xbox X and S series released (almost 4 years ago) now. During the craptastic forced lockdowns and scalping craze it was still possible to find a Series S and X (albeit not as easy for the X model) in stores. Whereas you couldn't find a PS5 in stores to save your life.

Xbox was, for lack of a better term, readily available then so they sold and the PS5 struggled to sell especially with their hardware shortages that delayed manufacturing. Now that everyone has had 4 years to get a Xbox if they so deemed fit to there have been numerous stories out claiming Xbox sales down or PS5 outsells Xbox.....yeah, well no sh!t. As time goes one the sales for the Xbox console will diminish and software side of things should increase (or at the very least, stay the same). This is why the PS5 sales spiked since Sony's manufacturing shortages were fixed and scalping fell to the wayside. The PS5 in the past 18-24 months has become easy to find in stores and now people can buy them.

All I know is that come August 12th, that's the last day I'm letting the sub for game pass renew. The nearly $5 price hike (after taxes) that kicks in on September 12th that offers the exact same service as we see now isn't worth it for the amount of time my kids play it. Sorry, MS, but you're revenue is going to be dropping by nearly $300 a year once I stop my sub renewal.
 
gamerk2 said:
Solid point.

But again highlights that Microsoft should just focus on SW; it's HW, outside of the 360/PS3 era, has been a drag on the rest of the unit [and you can argue that was more due to missteps by Sony rather then by anything Microsoft did].
Click to expand...

True.
At this point, MS should cut their loses and go third party, similar to what Sega did.
 
winjer said:
True.
At this point, MS should cut their loses and go third party, similar to what Sega did.
Click to expand...
It is important to remember that had Segas Arcade division not failed at the turn of the century, they probably would have continued to make consoles based off their Arcade HW. It was the failure of that unit that forced Sega out of the market. [Granted, the PS2 did *not* help whatsoever]
 
winjer said:
True.
At this point, MS should cut their loses and go third party, similar to what Sega did.
Click to expand...

Sony is also moving rapidly to 3rd party, by offering nearly all of their A1 titles on PC soon after, and reaping the benefits of profits due to diversity.

The era of the dedicated console finally seems to be fading after some 30+ years of growth.

A lot hangs on how Nintendo does in 2025 with their new offering... but I can see a future where everything sits upon a PC core, with a slightly different branded "skin" on-top. If Steam can get their s* together for something larger than a "deck" sized device, maybe they can also play in this space.
 
Let’s be honest here, the gaming revenue improved drastically not because they are doing well organically. It was due to an acquisition that cost them USD 69 billion, not including all the legal, M&A fees and other charges. So this increase in revenue is like throwing a stone into a sea. It’s nothing compared to the sunk cost. So I don’t see anything great. If anything, this is a negative news to me.
 
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wasihales said:
Despite a 42% decline in Xbox hardware revenue last quarter, overall gaming revenue increased by 44%. This suggests strong growth in other areas of gaming, such as software, subscriptions, or services.
Click to expand...
Ultimately, the list of hardware will impact their software sales on their game store. You can find the same game on PC and Xbox generally, but MS is losing out when people buy from say Steam or EPIC game store, instead of MS store. And again, the gains I believe are mostly attributed to the acquisition of Activision Blizzard, from popular games like COD.
 
Funny, Microsoft made Xbox specifically to compete with Sony, it took over 20 years but they do seem to be giving up.

Strong work from Sony to be honest, Microsoft had the money, at one point, they had the moment, yet after the terrible decisions of the Xbone, they just haven’t been able to recover.

Shame really, the first Xbox and 360 I have fond memories of.
 
MS continues to sh1t on the single decent thing they have produced in the last 20 years. The rest is just rinsing as much money as they can from existing IP.
 
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