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Xbox + Microsoft FY24 Q2 Results: Total Gaming +49%, Content and Services +61% Hardware +3%

Welfare

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Conference call here: https://www.microsoft.com/en-us/Investor/events/FY-2024/earnings-fy-2024-q2.aspx

Microsoft Overview
  • Revenue was $62.0 billion and increased 18% (up 16% in constant currency)
  • Operating income was $27.0 billion and increased 33%, and increased 25% non-GAAP (up 23% in constant currency)
  • Net income was $21.9 billion and increased 33%, and increased 26% non-GAAP (up 23% in constant currency)
  • Diluted earnings per share was $2.93 and increased 33%, and increased 26% non-GAAP (up 23% in constant currency)
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The following graph is my creation splitting out Content and Services and Hardware

GFIOIqiXEAAicaR.png


FY2024 Q3 (January to March 2024) Expectations for Xbox

Total Revenue growth by low 40's, 45 point impact from ABK
Content and Services growth by low to mid 50's, 50 points impact from ABK
Hardware decline

 
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ooh, nice surprise again didnt know this was today.

+3% hardware despite all the fire sales seems ok?

So the other numbers like gaming revenue, you could just do 49%-44%, +5% without the abk impact?

right this second the stock is up after hours minimally, so i'm going to tentatively surmise this was basically a push result overall for the street?
 
Total without Activision: +5%
Content and Service without Activision: +6%
Hardware: +3%

That's what hardware is being used for btw. I'll have the calcs in a bit.
 
So i have Oct to Dec 2022 at 3.5 million, is 2023 unit sales higher or lower based on X/S splits and December discounts versus the year before.
 
FY23 Q2FY24 Q2 (CC adjusted)
Total4.777.06
HW1.381.39
C&S (inc ATVI)3.385.41
Xbox3.383.55
ATVI3.33/2.33 (Net/GAAP Rev)1.86 (XB platform rev not inc)

Corrected HW rev. Should be right, though there is a gap between CS+HW and total
 
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+3% hardware despite all the fire sales seems ok?
Last year, Xbox Series S share was likely way bigger but they are also the december deals this year, so I guess it's also up YoY in units but not by a lot.

Anyways it's not as bad as the rest of the year but still bellow what we should expect for 3rd year sales.
 
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kmywlyw.png

Activision acquisition is great for the gross margin, but for this quarter the incorporation affects the operating expenses heavily
 
Last year, Xbox Series S share was likely way bigger but they are also the december deals this year, so I guess it's also up YoY in units but not by a lot.

Anyways it's not as bad as the rest of the year but still bellow what we should expect for 3rd year sales.
The larger Series S share last year was offset by the big discounts this year, so we should expect unit sales to also be around 3% higher?
 
The larger Series S share last year was offset by the big discounts this year, so we should expect unit sales to also be around 3% higher?
That depends on how high Series S share was last year.

Very quick math:
If it was 75% Series S at $249 and 25% Series X at $500 in 2022, units this year would be ~3% down
 
Honestly, these numbers are better than most made it out to be here and elsewhere.

Microsoft needed this acquisition to work out and it has. I'm excited to see what their hardware plans are going forward. Personally hoping for an all digital Pro console.

The holiday quarter 2022 was horrible for Xbox.
To be flat with that despite a heavy hardware subsidy is dire.

Dire how? Aren't these numbers in-line or a tad higher with their expectations/ public expectations?
 
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So how soon until Microsoft permanently puts the price of the Series X at $399.

I don't think they will, maybe when the Series X 1TB revision arrives, before that I think they will made ocasional deals like on Xbox One era.
 
Honestly, these numbers are better than most made it out to be here and elsewhere.

Microsoft needed this acquisition to work out and it has. I'm excited to see what their hardware plans are going forward. Personally hoping for an all digital Pro console.



Dire how? Aren't these numbers in-line or a tad higher with their expectations/ public expectations?
Everyone was shocked last year at how poorly Xbox was selling during the holidays. Series S was selling for 150$ to 199$!
And now revenue is barely up even though Series X was available and heavily discounted.
That is dire.

If I recall correct, Welfare was expecting way more hardware growth.
 
Everyone was shocked last year at how poorly Xbox was selling during the holidays. Series S was selling for 150$ to 199$!
And now revenue is barely up even though Series X was available and heavily discounted.
That is dire.

If I recall correct, Welfare was expecting way more hardware growth.


Gaming is now Microsoft's third largest business, bigger than Windows. Microsoft made $62 billion in Q2 2024 (fiscal). Gaming contributed $7.11 billion, more than the $5.26 billion from Windows
Nothing presented today equates to Xbox being in a terrible situation or event. Quite the opposite actually.

Microsoft has an operating margin of over 30%, which means they understand how to keep cost under control. They're making a play for the long term, which are cloud, server, service, and AI, and it'll be interesting to see how they continue to incorporate these into gaming.
 
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The $0.24B thats missing in C&S but part of ATVI rev can be attributed to other ATVI revenue sources. ATVI includes this in their FY reports and it includes stuff like CDL, OWL, other distribution revenues.

Last year, Xbox Series S share was likely way bigger but they are also the december deals this year, so I guess it's also up YoY in units but not by a lot.

Anyways it's not as bad as the rest of the year but still bellow what we should expect for 3rd year sales.

We already know from charts, for Oct-Dec, XBS is down in units:
  • US : ~ -6%
  • EU : Oct -52%, Nov -26%, Dec -19%
  • UK : ~ flat
 
The $0.24B thats missing in C&S but part of ATVI rev can be attributed to other ATVI revenue sources. ATVI includes this in their FY reports and it includes stuff like CDL, OWL, other distribution revenues.



We already know from charts, for Oct-Dec, XBS is down in units:
  • US : ~ -6%
  • EU : Oct -52%, Nov -26%, Dec -19%
  • UK : ~ flat
Those EU numbers... 💀
 


Nothing presented today equates to Xbox being in a terrible situation or event. Quite the opposite actually.

Microsoft has an operating margin of over 30%, which means they understand how to keep cost under control. They're making a play for the long term, which are cloud, server, service, and AI, and it'll be interesting to see how they continue to incorporate these into gaming.



Exaclty
 


Nothing presented today equates to Xbox being in a terrible situation or event. Quite the opposite actually.

Microsoft has an operating margin of over 30%, which means they understand how to keep cost under control. They're making a play for the long term, which are cloud, server, service, and AI, and it'll be interesting to see how they continue to incorporate these into gaming.

Xbox revenue is jumping because they bought the biggest publisher. A multiplatform publisher.
Nobody is saying Microsoft is in any trouble or Microsoft gaming.

But the hardware numbers are terrible, and won't get better with them releasing games on PS5 and Switch 2.
Microsoft being a behemoth didn't stop all their other hardware from failing: Windows phone, Zune, Surface Duo, the whole Surface line is on life support.
 


Nothing presented today equates to Xbox being in a terrible situation or event. Quite the opposite actually.

Microsoft has an operating margin of over 30%, which means they understand how to keep cost under control. They're making a play for the long term, which are cloud, server, service, and AI, and it'll be interesting to see how they continue to incorporate these into gaming.

The Xbox business is quite different from the segment (Personal Computing) and wider MS. So OI for those segments are not particularly helpful. Not to mention, most of the growth has come from the ABK, so it's hard to use this quarterly report to paint a rosy picture of the Xbox business.

Xbox revenue is jumping because they bought the biggest publisher. A multiplatform publisher.
Nobody is saying Microsoft is in any trouble or Microsoft gaming.

But the hardware numbers are terrible, and won't get better with them releasing games on PS5 and Switch 2.
Microsoft being a behemoth didn't stop all their other hardware from failing: Windows phone, Zune, Surface Duo, the whole Surface line is on life support.

A lot of the mainstream gaming journalists are financially illiterate. I don't mean to demean them, as finance is far outside of their expertise, but their takes tend to be quite ill informed. (Again, it shouldn't be an expectation that they understand these earning reports)
 
The $0.24B thats missing in C&S but part of ATVI rev can be attributed to other ATVI revenue sources. ATVI includes this in their FY reports and it includes stuff like CDL, OWL, other distribution revenues.



We already know from charts, for Oct-Dec, XBS is down in units:
  • US : ~ -6%
  • EU : Oct -52%, Nov -26%, Dec -19%
  • UK : ~ flat
The US was practically flat, 60K down in Oct, 150K down in Nov but 190K up in Dec. But overall the only way XBS could be up in units is if they overshipped.
 
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FY2024 Q3 (January to March 2024) Expectations for Xbox

Total Revenue growth by low 40's, 45 point impact from ABK
Content and Services growth by low to mid 50's, 50 points impact from ABK
Hardware decline
 
Weaker than expected results and further decline forcasted?
Time for Spencer to go ask daddy cash to buy another studio and fire another 1000 employees.
 
FY2024 Q3 (January to March 2024) Expectations for Xbox

Total Revenue growth by low 40's, 45 point impact from ABK
Content and Services growth by low to mid 50's, 50 points impact from ABK
Hardware decline
So decline would be -3 to 4% without ABK. That's despite a higher mix of XBX being sold vs XSS.

Weaker than expected results and further decline forcasted?
Time for Spencer to go ask daddy cash to buy another studio and fire another 1000 employees.

Xbox has a lot of great assets. They need to make better use of what they have. I think Xbox needs new leadership.
 
FY2024 Q3 (January to March 2024) Expectations for Xbox

Total Revenue growth by low 40's, 45 point impact from ABK
Content and Services growth by low to mid 50's, 50 points impact from ABK
Hardware decline
Wow, the Jan to Mar quarter last FY was terrible for hardware and they expect a decline from such a bad quarter.
 
Xbox has a lot of great assets. They need to make better use of what they have. I think Xbox needs new leadership.

I've personally been saying Spencer is good talking and less at actually doing his job for years now.
It's 2024, more than a decade into the Spencer-era, and if you ask the average Joe "what is Xbox" they would not be able to give you a definitive answer.

A platform? A service? A publisher? A bit of all three?
It genuinely feel like they are winging it at times.
 
Wow, the Jan to Mar quarter last FY was terrible for hardware and they expect a decline from such a bad quarter.
Yes. Potentially 500-600K shipped for the entire quarter. Last year was approximately 1-1.2M shipped.

I've personally been saying Spencer is good talking and less at actually doing his job for years now.
It's 2024, more than a decade into the Spencer-era, and if you ask the average Joe "what is Xbox" they would not be able to give you a definitive answer.

A platform? A service? A publisher? A bit of all three?
It genuinely feel like they are winging it at times.

Spencer threw some buzzword ideas at Satya to get him interested in backing Xbox: "Netflix of gaming" and "Cloud". Wall St looked favourably on these business models and during the bull run of tech/gaming in 2021, he convinced Satya to make a big purchase with MS cash, rather than let the cash sit in a low-interest earning environment. However, subs are no longer sexy, and the reality of cloud gaming and gaming subs point to a lower TAM (total-addressable-market) than originally envisioned. But I don't think Phil has a clue on what to do beyond these buzzwords, and his management and execution of the division has led to mixed results in terms of output. People forget that Phil was responsible for XGS well before he was head of Xbox. So he's been in charge of XB software output for 2 decades, and despite that, has only mediocre SW output to show for this period.
 
So despite the hardware revenue increase yoy it is likely that there was a small decline in units yoy. my estimates

F2gt0pl.png
 
Their first major exclusive of this year isn’t until the end of May and unless it does for Ninja Theory what Alan Wake 2 did for Remedy I don’t see it moving many consoles or subscriptions.

These games seem to only really gain the interest of people already engrained within the xbox eco system already. Those hardware numbers are probably going to track that way until Fall.

Then they have to contend with the marketing of Switch 2 and PS5 Pro…
 
Xbox revenue is jumping because they bought the biggest publisher. A multiplatform publisher.
Nobody is saying Microsoft is in any trouble or Microsoft gaming.

But the hardware numbers are terrible, and won't get better with them releasing games on PS5 and Switch 2.
Microsoft being a behemoth didn't stop all their other hardware from failing: Windows phone, Zune, Surface Duo, the whole Surface line is on life support.
I don't get where 50 million is terrible, its a good number overall and they must get good profit margins per user due to digital store and their higher ratio against physical.
 
Hardware is weak, but I don’t know what they can do other than a permanent price drop.
 
You do realise Activision revenue also had the possibility of increasing YoY. So we don't know how much CoD poor performance affected Revenue generated or not generated.

Would be hard to increase with an expansion of Modern Warfare II pretending to be a full game.

The revenue is pretty great for a quarter with a disappointing CoD launching.
 
Wow, the Jan to Mar quarter last FY was terrible for hardware and they expect a decline from such a bad quarter.
Recoil effect from Holiday discounts.
Yes. Potentially 500-600K shipped for the entire quarter. Last year was approximately 1-1.2M shipped.
Sales won't decline 50% YoY, let's be reasonable there. 500k will probably be done in the US alone.
 
Looking at the results, I can perfectly understand why would Microsoft exec would want to release games on other platforms. Granted considering that people don't buy games on Playstation either, I don't think it will help much. Plus the console margins are low, so it is not great either.

I don't see how consoles sales can recover. Phil was right that losing Xbox One era was the worst time to lose because now it is close to impossible to make people switch from one ecosystem to another. I mean right now even Playstation has trouble making people switch from PS4 to PS5 without much profit because people just buy consoles and continue playing the same big games.

It is funny that some people believe that by starting the next gen early Microsoft somehow will be able to make people abandon their digital ecosystems and friends and switch to a whole different platform. People don't do that on PC with different launcher (losing their Steam achievements and digital libraries), much less buying a completely different hardware with all their friends, achievements and so on. It is like on mobile - same people buy same phones every year within the same ecosystem. Some new markets open but even then - like iPhone in China - it does not grow much and can contract even.

Xbox has to do something different this time. In home consoles it is basically over.
 
Recoil effect from Holiday discounts.

Sales won't decline 50% YoY, let's be reasonable there. 500k will probably be done in the US alone.

If the channel is still stuffed with holiday inventory it's not out of the question that out of realms of possibility that unit shipment is down 50%. I mean @Welfare estimate has them down 40%.

Looking at the results, I can perfectly understand why would Microsoft exec would want to release games on other platforms. Granted considering that people don't buy games on Playstation either, I don't think it will help much. Plus the console margins are low, so it is not great either.

I don't see how consoles sales can recover. Phil was right that losing Xbox One era was the worst time to lose because now it is close to impossible to make people switch from one ecosystem to another. I mean right now even Playstation has trouble making people switch from PS4 to PS5 without much profit because people just buy consoles and continue playing the same big games.

What the hell did I just read. People don't purchase games on Playstation? How is Playstation generating record settings revenue then?
Sony will report in financials that PS5 is selling to retail faster than PS4. The only reason is fell behind is because of supply issues caused by COVID.
 
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Activision revenue dropped from $2.3B to $2.1B. That "COD -40%" barely had an impact on their bottom line, it seems.
One must consider that this year Activision also had Diablo 4, which nevertheless continues to sell some units. That helped lessen the effect of COD "poor" performance. Next year they will have to do well with the next Cod because they won't have any other game other than that.
 
Xbox has a lot of great assets. They need to make better use of what they have. I think Xbox needs new leadership.

I've personally been saying Spencer is good talking and less at actually doing his job for years now.
It's 2024, more than a decade into the Spencer-era, and if you ask the average Joe "what is Xbox" they would not be able to give you a definitive answer.

I want Phil Spencer to stay. Love to see him wearing a gaming t-shirts.
 
Yes. Potentially 500-600K shipped for the entire quarter. Last year was approximately 1-1.2M shipped.

More like 800K shipped, and in 2024 XBS is looking to sell 5 million top.

Sony will not drop price looking at XBS sales and will rather be happy selling 18-19m in 2024. If this hold true then overall console HW will be decline by good amount vs PS4/XBOne. Not to forget Switch 2 will come loaded with AAA 3rd party announcements this time around.
 
One must consider that this year Activision also had Diablo 4, which nevertheless continues to sell some units. That helped lessen the effect of COD "poor" performance. Next year they will have to do well with the next Cod because they won't have any other game other than that.
Last year (2022) they had the WoW expansion, which also actually came out in Q4 (unlike Diablo).

Next year (aka this year) they will also have a WoW expansion.
 
How is Playstation generating record settings revenue then?
By selling hardware that is more expensive than the previous gen? By selling games that are more expensive than the previous gen? Revenue is not the profit. Prices on everything in gaming - PS+, games, MTX - has become more expensive than the previous gen.

Selling 10m 499$ consoles gives you more revenue than 10m 399$. Same with games - by selling 1m 70$ games you get bigger revenue than 1m 60$. We see that with SM2, where even 10m sales will generate less profit than 10m of SM1. PS+ will generate bigger revenues simply because the price has increased - even if subs do not grow much.

P.S. we should probably add yen devaluation to that too.
 
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