Microsoft is on the forefront of innovation in gaming. From focus on hardware sales and a siloed experience on Xbox, they are leading the way in cloud gaming and subscription offerings creating huge growth opportunities in “services.” They’ve been able to expand the Xbox ecosystem from just the console market to PC (Xbox Play Anywhere) and mobile (xCloud). This is giving them access to completely new demographics of users and it’s already paying dividends.
On Wednesday, Microsoft had their earnings call and their gaming division did not disappoint. Microsoft’s Xbox division generated $3.6B in revenue (+50% YoY). A big part of the massive growth for Microsoft’s gaming division came from the release of their ninth generation Xbox Series X. Overall hardware sales increased 232% YoY and they mentioned that the reason that number isn’t higher is due to supply side issues, not demand.
While these hardware sales are the traditional numbers that catch headlines, this won’t be Microsoft’s major focus going forward. Even without the release of their major exclusive titles, Xbox content and services (third-party titles, Xbox Game Pass subscriptions, and first-party titles) generated $739M in the quarter (+34%). While the latest publicly announced Game Pass subscriber number was 18M in January of 2021, over the last week it has been rumored to have exceeded 22M subscribers with 30M expected after the release of Halo: Infinite. Personally, I’m waiting for the new Halo before I buy the Xbox Series X.
Microsoft has such an interesting future in gaming with the ability to benefit from third-party content, offer premier first-party content like Minecraft (and now Bethesda games after acquiring ZeniMax Media), and expansion to PC and mobile through Game Pass and xCloud. They are led by one of the brightest minds in gaming with Phil Spencer which adds to our bullish expectations of the future for Microsoft in gaming.