Microsoft has just released its earnings report for the fourth quarter of the 2024 fiscal year, and the numbers are looking impressive for Xbox. According to the report, Xbox content and services revenue has skyrocketed by 61%, and this can largely be attributed to Microsoft’s massive $69 billion acquisition of Activision Blizzard, which was finalized in October 2023.
The impact of the Activision acquisition is evident not only in Xbox content, but also in overall gaming revenue, which has seen a 44% increase. The report reveals that 48 points of this growth can be directly attributed to the Activision acquisition. In fact, the impact of the acquisition accounts for 58 points of the overall 61% growth. This showcases the significant influence that Activision has had on Xbox’s performance.
However, it’s not all good news for Xbox. The hardware segment of Xbox has experienced a significant decline, with revenue dropping by a staggering 42% in Q4 FY24. This decline in hardware revenue is not impacted by the Activision acquisition, indicating that Xbox is struggling in areas outside of the acquisition’s influence.
When we look at Microsoft’s recent earnings reports, a trend becomes apparent. In the previous quarter, Xbox hardware revenue fell by 31%, while content and services revenue grew by an impressive 62%, with 61 points of net impact from the Activision acquisition. Although hardware saw a slight 3% increase in Q2, it had already dropped by 7% in Q1 of FY24. This decline in hardware sales is not unique to Microsoft, as recent reports from Circana have indicated a double-digit drop in overall hardware sales.
Microsoft CEO Satya Nadella highlighted the increased visibility of Microsoft properties as a contributing factor to the growth. He specifically mentioned the company’s showcase during the Summer Game Fest and the debut of the Fallout TV show on Prime as examples of Microsoft’s growing reach. This increased visibility has undoubtedly played a role in attracting more users to Xbox’s content and services.
During the earnings call, CFO Amy Hood expressed satisfaction with the 61% growth, stating that it slightly exceeded expectations. She also noted that the growth in first-party publishing offset slightly less impressive third-party sales. Looking ahead, Microsoft expects gaming to continue growing in the mid-30s for the first quarter of FY2025.
In conclusion, Xbox’s performance in Q4 FY24 has been impressive, with a significant increase in content and services revenue thanks to the Activision acquisition. However, the decline in hardware revenue highlights some challenges that Xbox needs to address. Nonetheless, Microsoft remains optimistic about the future of gaming and expects continued growth in the coming quarters. With its increased visibility and a strong lineup of first-party titles, Xbox is well-positioned to capitalize on the booming gaming industry.
