Xbox hardware stumbles as Game Pass delivers record Q4 engagement

Microsoft delivered a 1 percent increase in gaming revenue during the fourth quarter of the fiscal year, which represents an increase of $36 million.

In its fiscal report for the quarter ended June 30, 2023, the company said that modest upswing was the result of growth in Xbox content and services, offset by a partial decline in Xbox hardware.

"Xbox content and services revenue increased 5 percent driven by growth in third-party content and Xbox Game Pass. Xbox hardware revenue decreased 13 percent driven by lower volume of consoles sold," reads the report.

Overall, the company reported consolidated revenues of $56.2 billion during the quarter, an increase of 8 percent year-on-year. Operating income also increased by 18 percent to $24.3 billion.

Hardware sales stutter, but Xbox Game Pass reaches new heights

Discussing the performance of Microsoft's Xbox business on an earnings call, CEO Satya Nadella indicated the company will look to deliver growth by "bringing more games to more players everywhere. He also reiterated the company is "confident" of getting its pending Activision Blizzard merger over the line after winning its high-profile court battle with the Federal Trade Commission in the United States.

"Great content is key to our approach, and our pipeline has never been stronger," said Nadella. "We announced our most ambitious line up of games ever at our showcase last month, including 21 titles that will be available via Xbox Game Pass. And we’re looking forward to the release of Starfield this fall, Bethesda’s first new universe in 25 years."

Nadella added that Xbox just set new fourth quarter highs for monthly active users, driven by strength "off-console" and "monthly active devices." It's a tidbit that suggests the decision to expand the Xbox platform beyond the realm of consoles through initiatives like PC Game Pass is paying off.

"We saw record fourth quarter engagement across Game Pass, with hours played up 22 percent year-over-year," continued Nadella. "And just last week, we announced Game Pass Core, bringing together online play from Xbox Live and content from Game Pass into a single offering. In closing, I am energized about the opportunities ahead."

As for how Microsoft expects those opportunities to materialize on its balance sheet, CFO Amy Hood said the company is forecasting "revenue growth in the mid-single digits" within its Gaming business. "We expect Xbox content and services revenue growth in the mid to high-single digits driven by first-party and third-party content as well as Xbox Game Pass," they added.