Decrease of 13% in Xbox Sales During Q4, However Game Pass Hours Played Witnessed a Growth of 22%

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Microsoft has recently released its earnings report for the fourth quarter of 2023, and it presents a somewhat mixed performance for the company’s Xbox division. Although the gaming division showed a marginal improvement of 1 percent in revenue compared to the previous year, it fell below Microsoft’s expectations.

The underwhelming growth can be largely attributed to the decline in sales of the Xbox Series X/S consoles, which decreased by 13 percent compared to the previous year. This decline has persisted for several quarters, as Microsoft’s next-generation console struggles to gain momentum against competitors like Nintendo’s Switch and Sony’s PS5. Additionally, sales of first and third-party games were weaker than anticipated for the quarter. While the specific underperforming third-party games are unknown, it is highly likely that Redfall, a first-party game released in May, received negative reviews.

However, despite these challenges, gaming revenue still managed to increase by 1 percent, driven by a 5 percent year-on-year growth in Xbox content and services revenue. This growth can be primarily attributed to the success of Xbox Game Pass. While Microsoft has not disclosed the exact number of subscribers, the amount of time spent playing games on Game Pass increased by 22 percent in the fourth quarter compared to the previous year. In recent months, Microsoft has implemented strategies to attract more Game Pass subscribers and generate more revenue, such as reintroducing the $1 subscription deal for new users, integrating Xbox Live into the service as “Game Pass Core,” and adjusting subscription prices.

Looking ahead, Microsoft maintains a cautiously optimistic outlook for the future of the Xbox division. According to Amy Hood, the company expects “mid-single-digit” revenue growth and “mid-to-high-single-digit” growth in content revenue for the fiscal year 2024. Undoubtedly, the release of the highly anticipated game Starfield will play a significant role in achieving these targets. However, it is worth noting that the landscape of Microsoft’s gaming division may drastically change if they successfully acquire Activision Blizzard, although the company is not relying on that potential acquisition for its future performance.

What are your thoughts on the current state of Xbox? Where do you see the division in the next year or two?