Xbox Content and Services Revenue Increases as Hardware Falls

Microsoft’s Xbox hardware revenue declined 30 percent year-over-year in the three months ended March 31, 2023, the tech giant reported Tuesday. 

However, the company attributed the drop in revenue to an elevated supply of consoles in the prior year, thus creating a tough comparison. Xbox content and services revenue increased 3 percent, driven by better than expected monetization in third party and first-party content and growth in the Xbox Game Pass, its subscription service that gives users access to Xbox games on consoles, PCs and mobile devices.

Overall, gaming revenue declined 4 percent year over year.

Revenue for the third quarter reached $52.9 million, up seven percent year-over-year, and net income increased to $18.3 billion, up nine percent year-over-year. Both beat Wall Street expectations.

The positive earnings results came after Microsoft announced plans to lay off 10,000 employees, or a little less than 5 percent of its workforce at the end of January, following in the footsteps of Amazon, Meta and more. The layoffs were scheduled to be completed by the end of Q3.

At the time, CEO Satya Nadella cited a pullback in spending among consumers, as well as anticipation of a tough macroeconomic climate ahead. 

“As we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less,” he wrote. “We’re also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one. At the same time, the next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform.”

The tech company is also facing regulatory opposition to its $68.7 billion acquisition of gaming company Activision Blizzard. In December 2022, the Federal Trade Commission sued to block the sale due to antitrust concerns. Speaking of the acquisition Tuesday, management said it will “continue to work toward closing in fiscal year 2023, subject to obtaining required regulatory approvals.”