In recent time, the state of Xbox is left to question if Microsoft is still committed to the 20 year-running division. And in its Xbox Business Update, it revealed that gaming remains a focus with four games from its rich catalog to ship on PlayStation & Nintendo. Even more, Microsoft also commented on its effort for console still being a forefront for the business model. Stating it as the “largest technological leap” for any retail unit.
Additionally, the concern also leans towards the direction Microsoft is heading now with $70 billion in the hole from the Activision Blizzard deal. When pressed in the acquisition post-mortem, CEO Satya Nadella elaborated on “being a good publisher” with its view ahead. Nadella elsewhere also said that the focus is to be “doubling down” on first-party endeavors moving forward.
So how exactly is Xbox performing after its first full financial quarter now in ownership of Activision Blizzard King? In the FY24Q3 filing, it reveals both gaming as well as content & services revenue is up; 51 percent and 62 percent respectively. However, consoles hardware revenue remains to be on a decline at 31 percent. You can view the slide in the image below:
Satya Nadella’s statement on gaming from the past quarter: “We are committed to meeting players where they are by bringing great games to more people on more devices. We set third quarter records for game streaming hours, console usage, and monthly active devices. And last month we added our first Activision Blizzard title, Diablo IV, to our Game Pass service. Subscribers played over 10 million hours within the first 10 days, making it one of our biggest first party Game Pass launches ever.
“We’ve also been encouraged by the ongoing success of Call of Duty’s Modern Warfare III, which is attracting new gamers and retaining franchise loyalists. Finally, we’re expanding our games to new platforms, bringing four of our fan-favorite titles to Nintendo Switch and Sony PlayStation for the first time. In fact, earlier this month, we had 7 games among the top 25 on the PlayStation store, more than any other publisher.”
One perspective many users online are adopting is if the Activision Blizzard acquisition was worth the price Microsoft paid. Now with the power of Call of Duty, Overwatch, and Candy Crush, Xbox has not faced a surge in console sales. In fact, it’s short of 1 million units in the past quarter. So what is the end goal for Xbox now? From Niko Partners analyst David Ahmad, he views the deal is to generate revenue in services which outweighs the hardware revenue freefall.
“One of the larger talking points recently has been hardware decline, which is a legitimate point to make, but I think it misunderstands Xbox’s current strategy. The entire M&A push over the past few years has been driven by a need for consistent releases on Game Pass, and the expansion to PC, cloud and other consoles has been driven by a need to expand beyond a console base that already lagged its competitors,” Ahmad says in the thread.
“This doesn’t mean Xbox should or would stop releasing new hardware, but it does mean that Xbox’s challenge going forward is being able to successfully offset any decline in Xbox hardware with increased spend on software and services. The Activision Blizzard acquisition goes towards achieving that and it’s why gaming revenue is still up more than 50% YoY despite the hardware decline.
“We’ll have a better idea of how Xbox is doing next year after the impact of Activision Blizzard is fully baked in.” What is your opinion on Xbox’s performance since acquiring Activision Blizzard?
Source: Microsoft, (1)
