What just happened? Microsoft's latest quarterly earnings report was a good one overall for the company, with revenue and net income showing large increases compared with the previous year. It wasn't all welcome news, though, as Xbox Series X and S sales are still crashing.
Microsoft made $61.86 billion in revenue during the first three months of 2024, up 17%, with a net income of $21.9 billion, beating analysts' estimates.
Microsoft's gaming revenue was up 51% year-over-year, but this is nearly all due to the Activision Blizzard acquisition. Activision Blizzard was responsible for the vast majority of the business' $5.45 billion profits – gaming revenue would be down 4% were it not for money from the likes of Call of Duty – while Xbox Series X and S revenue was down 31 percent year-over-year. Microsoft reported a 30% decrease in Xbox hardware revenue last year, and, as was the case back then, it is attributing the latest fall on a lower volume of consoles being sold. Xbox content and services revenue was up 62 percent – 61% came from Activision.
It's estimated that Microsoft has sold around 21-25 million Xbox Series X/S consoles to date, around half the PlayStation 5's estimated 50 million units. Even the Atari 2600 from 1977 sold more units (30 million). It's partly why Microsoft is making former exclusives available to other platforms. CEO Satya Nadella said in the Q3 earnings call that the company published 7 of the top 25 games on PlayStation this month, more than any other publisher.
The Activision Blizzard division recorded $1.97 billion in revenue during Q3, but purchase accounting adjustments, integration, and transaction-related costs, along with other costs of revenue, came to $980 million. Combined with $1.34 billion in operating expenses, Activision Blizzard recorded an operating loss of $350 million.
Microsoft CFO Amy Hood expects Xbox hardware revenues to continue declining again in the next quarter, with overall gaming revenue growth in the low to mid 40 percent region.
Away from gaming, Microsoft's Cloud revenue was up 23% YoY to $35.1 billion. As investors become impatient with the slow returns on the massive AI investments made by some companies, Microsoft noted that 7% of revenue within the Azure cloud computing division was from AI services, up from 3% during the previous quarter.