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In the gaming industry, software reigns supreme over hardware. The real profits come from video games, where the margins are higher and long-term monetization of a single development is more feasible. This principle is evident in Microsoft’s latest financial results.
Microsoft recently reported its financial outcomes for the fourth and final quarter of its fiscal year 2024. The company achieved revenues of $64.7 billion and net profits of $22 billion for the quarter, marking a 15% increase in revenues and a 10% rise in net income. A significant contributor to this growth was Microsoft’s intelligent cloud division, which includes server products and cloud services. This segment generated $28.5 billion, reflecting a 19% year-over-year increase and now accounts for nearly 45% of Microsoft's total revenue.
However, despite strong performance in cloud revenues, Microsoft's consumer device segment is facing challenges. Xbox hardware revenues have dropped significantly, highlighting a concerning trend. The detailed financial breakdown reveals mixed results:
- Windows OEM revenue increased by 4%
- Devices revenue decreased by 11%
- Gaming revenue rose by 44%
- Xbox content and services revenue surged by 61%
- Xbox hardware revenue plummeted by 42%
The Xbox division's survival is largely due to revenues from Activision Blizzard King. This quarter, Xbox’s revenues from content and services, including Xbox Game Pass, increased by 61%, with Activision Blizzard contributing 58 points to this growth. Without Activision Blizzard, the increase would have been a modest 3% year-on-year.
As of February, Xbox Game Pass has reached 34 million subscribers, including Xbox Game Pass Core members. Microsoft plans to introduce a new Xbox Game Pass Standard plan to replace the existing console offer for new subscribers. In September, the prices for Xbox Game Pass Ultimate and PC Game Pass will rise to $19.99 and $11.99 per month, respectively.
Despite excitement around new Xbox Game Pass games, console sales are struggling. Xbox hardware revenue dropped by 42% this quarter. Microsoft aims to boost hardware sales by launching a white Xbox Series X and a special edition Galaxy Black Xbox Series X later this year. The quarterly hardware revenue performance for Microsoft's FY24 has been inconsistent:
- Q1: Xbox hardware down 7%
- Q2: Xbox hardware up 3%
- Q3: Xbox hardware down 31%
- Q4: Xbox hardware down 42%
Microsoft is also shifting its focus towards cloud streaming efforts, introducing the Xbox TV app on some Amazon Fire TV devices, which indicates a strategic move away from traditional console hardware marketing.
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| Microsoft reported 500 million monthly active users across all platforms and devices |
Despite declining hardware revenues, Microsoft’s game revenue increased by 44%, significantly supported by Activision Blizzard's contributions, which accounted for 48 points of this growth. Without this acquisition, Microsoft's total game revenue would have decreased by 4%.
Microsoft did not update its Xbox Game Pass subscriber numbers this quarter but did share that it now has over 500 million monthly active users across all platforms and devices. "Our content portfolio has never been stronger," said Microsoft CEO Satya Nadella during an earnings call.