Xbox Financial Report: Strong Game Pass Growth Amidst Declining Hardware Sales

Microsoft shared its fourth quarter financial report last night, revealing revenues of $64 billion with a 15% increase compared to the same period last fiscal year. For investors, this represents positive news as a whole. Delving into the results of the gaming division, Xbox, the data suggests a mixed outcome.

Between March and June 2024, the gaming division experienced a significant year-on-year profit increase of 44%. This gain was heavily impacted by the Activision Blizzard King acquisition, which contributed 48 points to the increase. Without this acquisition, profits would have seen a 4% decline.

Overall, Xbox reported a total fiscal year profit growth of 61%, with the ABK acquisition contributing 58 points. Game Pass is a major contributor to this expansion. During a Q&A with Satya Nadella following the report presentation, it was revealed that Microsoft's gaming division has 500 million active users across all platforms and services. The next year will show how users and markets react to the new Game Pass pricing and subscription tiers.

One area of concern from this report is the sharp decline in hardware. Xbox console production fell by 42% compared to FY2023. This could suggest a strategic shift towards cloud gaming, potentially leading to a gradual decline in Microsoft's role as a hardware manufacturer. Comparing the current momentum of the X Series to the corresponding period for Xbox One sales, there is a drop of 13%, according to Circana's US market data.

Even with these numbers, Microsoft plans to unveil a new piece of hardware this year. Speculation surrounds whether this will be a portable model, as rumors suggest, or part of the next generation of home consoles.

What are your thoughts on this situation? Do you believe Microsoft's policy regarding Xbox consoles will undergo any significant changes soon?