Microsoft (NASDAQ:MSFT) has delivered its earnings for the quarter ending June 30, 2022, and while overall results were respectable given the economic downturn on the horizon, the company’s Xbox division performed well below other segments of the company.
Overall, Microsoft’s revenue increased 12 percent year-on-year in Q4 2022 (Microsoft’s fiscal year runs from the beginning of July to the end of June), which was below expectations and the 18 percent growth last quarter. Meanwhile, Gaming revenue declined 7 percent year-on-year, with hardware sales being down 11 percent and Xbox game and services revenue down 6 percent. That said, there was still growth in Xbox Game Pass subscriptions (perhaps tied to a $1 for 3 months promotion run during the quarter). Microsoft has not specified how big the increase was.
Somewhat surprisingly, despite the double-digit drop in Xbox hardware revenue, Microsoft CEO Satya Nadella claimed the Xbox Series X/S has now outsold the PlayStation 5 for three straight quarters…
We offer the best value in the gaming industry. Our Xbox Game Pass subscription service includes access to hundreds of games and Xbox Series S is the most affordable next-generation console. We sold more consoles live-to-date than any previous generation of Xbox, and have been the market leader in North America for three quarters in a row amongst next-gen consoles.
This speaks to the major effect hardware manufacturing constraints are continuing to have on the industry, with the Xbox Series X/S topping the next-gen console charts not because of its strong sales, but the near-impossibility of finding a PS5. Meanwhile, on the software and services front, Microsoft blames the dip in revenue on lower engagement and monetization in first and third-party titles, which seems like a veiled admission that Halo Infinite, a game the company likely hoped would carry the Gaming division through much of 2022, is underperforming. According to Microsoft CFO Amy Hood, Xbox revenue will likely see another decline in the “mid-single digits” range next quarter.
Again, many in the tech and entertainment industries are facing challenges as we enter a post-pandemic down period, but it’s hard not to be somewhat disappointed by Xbox’s uninspiring numbers given the billions upon billions Microsoft has spent (or will spend) on companies like Bethesda and Activision Blizzard. Even with all the money being thrown around, it seems building up the Xbox brand will continue to be a long-term endeavor.
What are your thoughts on the latest Xbox results? Disappointing or expected given the climate?