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Xbox + Microsoft FY24 Q4 Results: Total +44%, Content and Services +61% (58 points from ABK), Hardware -42% (Next quarter guidance in OP)

Welfare

Welfare

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Scholar Archivist Staff
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Xbox next quarter guidance:

Xbox revenue to growth mid 30's, with 40 points net impact from ABK

Content and Services to grow in the low to mid 50's, driven by net impact from ABK

Hardware decline YOY

Microsoft Overview
  • Revenue was $64.7 billion and increased 15%
  • Operating income was $27.9 billion and increased 15%
  • Net income was $22.0 billion and increased 10%
  • Diluted earnings per share was $2.95 and increased 10%
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FY2024 Q3 (January to March 2024) Expectations for Xbox were

Total: growth in the low to mid 40's with ~50 points impact from Activision (+40-45%, -5-10% without ABK)
Content and Services: growth in high 50's with 60 points impact from Activision (+57-59%, -1-3% without ABK)
Hardware: decline YOY

FY24 Q4 - Press Releases - Investor Relations - Microsoft
 
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ABK is doing crazy numbers. So last year numbers for the same quarter did not include ABK? Because I find it strange that it grows 40-45% every quarter. I don't believe that ABK is going 40% every time.
 
GodlyTrident said:
ABK is doing crazy numbers. So last year numbers for the same quarter did not include ABK? Because I find it strange that it grows 40-45% every quarter. I don't believe that ABK is going 40% every time.
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Next fiscal year is when the growth slows down or stops on ABK. It didn’t have impact last year
 
GodlyTrident said:
ABK is doing crazy numbers. So last year numbers for the same quarter did not include ABK? Because I find it strange that it grows 40-45% every quarter. I don't believe that ABK is going 40% every time.
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the numbers from the same quarter last year did not include Activision. We have to wait for the October-December 2024 quarter to get a somewhat more truthful comparison since Activision's numbers began to flow into Xbox's since mid-October 2023 , after the acquisition was finalized. For an even better comparison we will have to wait for the January-March quarter 2025, to get a complete picture. It is very likely that the growth will be greatly reduced at that point, the gamepass price increase may help in that regard but it is not known how much
 
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This quarter is a repeat of last quarter. Console numbers plummeted , content and services numbers up sharply, obviously helped by the ABK acquisition. Without Activision's numbers, the quarter would be negative for Xbox
 
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Xbox likely moving to being a mix of a publisher and games services provider.

Will be interesting to see what MS do in the OS space for Windows consoles and handhelds.
 
Xbox hardware down massively as expected.
Market didn't like this quarter at all. If the Microsoft stock price ever comes under sustained pressure (AI bubble popping or something else) I can see Satya being quite ruthless with the Xbox devision.
 
reksveks said:
kinda in-line with my expectations based off the transcript last quarter
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I am still amazed how on point they are with their expectations.

awng782 said:
Xbox FY Q4 HW revenue YoY change:
FY21: +172%
FY22: -11%
FY23: -13%
FY24: -42%
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What is interesting here is that how hardware sales are irrelevant to their revenue post ABK. Like 42% drop? Oh well just 4% gaming revenue drop.
 
Butzke said:
Xbox hardware down massively as expected.
Market didn't like this quarter at all. If the Microsoft stock price ever comes under sustained pressure (AI bubble popping or something else) I can see Satya being quite ruthless with the Xbox devision.
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All signs are he already is being ruthless.
 
Copilot said:
They made 21 billion last FY and are about to surpass Windows soon.
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That's precisely why Satya will demand profits in line with other major Microsoft divisions.

Xbox is too big to be ignored now.
 
Copilot said:
They made 21 billion last FY and are about to surpass Windows soon.
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If they made any profit at all, the margin will be tiny compared to other Microsoft divisions.

Xbox and Surface hardware will be the first to go on the chopping block if Satya ever gets spooked.
 
Butzke said:
If they made any profit at all, the margin will be tiny compared to other Microsoft divisions.

Xbox and Surface hardware will be the first to go on the chopping block if Satya ever gets spooked.
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They should merge those divisions (Xbox, Surface and Devices).
 
Xbox now has over 500M MAU

Fallout franchise gameplay hours on Game Pass increased nearly 5x quarter over quarter
 
If I was an Xbox employee, I would be thanking god that they bought ABK. Given the state of the industry, things would be more bleak for Xbox's future had the merger not happened.
 
Microsoft expects Xbox revenue for the first quarter of Fiscal Year 2025 to growth mid 30's, with 40 points net impact from ABK

Content and Services to grow in the low to mid 50's, driven by net impact from ABK

Hardware decline YOY
 
Welfare said:
Microsoft expects Xbox revenue for the first quarter of Fiscal Year 2025 to growth mid 30's, with 40 points net impact from ABK
Content and Services to grow in the low to mid 50's, driven by net impact from ABK
Hardware decline YOY
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So I guess it will be around -5% revenue decline. Though I expect it to be a little bit better due to EA Football and relatively solid september.
 
FY23 Q4FY24 Q3 (CC adjusted)
Total3.4915
HW0.5940.345 (-42%)
C&S (inc ATVI)2.94.66
Xbox C&S2.92.98 (3% growth)
ATVI--,---/--,-- (Net/GAAP Rev)1.68 (XB platform rev not inc)

There are some very concerning things in these numbers.

Firstly, that meagre 3% growth includes:
  • 3rd Party revenue (i.e if EA/T2/Ubi/Epic had revenue growth you would see it accounted here as well),
  • 1st Party revenue including new releases
  • GamePass revenue
All of that put together, the PS ports are counting here iirc ( can't remember what Xbox 1P had last Q4) it shows how even the software system of Xbox may be flatlining or declining.

Gamepass is either flat or declining, or 3rd/1P sales are in decline.

So far in 2024, XB hardware is 30-40% down:
  • I estimated XBS 2023 sales to be 6.5M
  • XBS 2024 is 5-5.3M, it may even drop <5M
For reference this is likely on par or below the OG Xbox.

Lastly, a big positive of the ABK acquisition, its profitability is in a dire situation:
  • $1.68B Revenue
    • $1.10 Opex + $0.21 COGS = $1.31
    • This isn't all costs
    • Op margin is <20%, likely <$300M
 
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enpleinjour said:
There are some very concerning things in these numbers.

Firstly, that meagre 3% growth includes:
  • 3rd Party revenue (i.e if EA/T2/Ubi/Epic had revenue growth you would see it accounted here as well),
  • 1st Party revenue including new releases
  • GamePass revenue
All of that put together, the PS ports are counting here iirc ( can't remember what Xbox 1P had last Q4) it shows how even the software system of Xbox may be flatlining or declining.
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Earnings call:

And in Gaming, revenue increased 44% with 48 points of net impact from the Activision acquisition. Xbox content and services revenue increased 61%, slightly ahead of expectations, with 58 points of net impact from the Activision acquisition. Stronger-than-expected performance in first-party content was partially offset by third-party content performance. Xbox hardware revenue decreased 42% and 41% in constant currency.
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Considering there was nothing mentioned positive or negative about subs, that should be considered flat YOY
 
GodlyTrident said:
They will cut off neither Xbox nor Surface. Also Surface is sold at profit. What will happen though is that Xbox won't be subsidized going forward.
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Yeah, it will , lol.

you (basically) cant make a core console without subsidizing the hardware, yet overall ms always maintains xbox is profitable overall.

i hate it but basically a lot the reasons gamepass and ps plus exist and are expensive, is in turn to subsidize hardware. because if you dont you will lose.

and the way theyre talking about massive tech innovation/power for next gen theres no way it wont be subsidized. unless it shockingly turns out to be mostly cloud leveraged or something but that's extremely unlikely.
 
msft down 11% after hours never mind it's $11. only 2.7%
gaming doesnt really effect the stock, it's apparently cloud missing by .6%
 
Amy Hood: "I do think the real goal here is to be able to take a broader set of content to more users in more places and really build what looks more like to us a software annuity and subscription business"
 
Hardware being massively down not really a shocker. MS trying to decouple gamepass and Xbox will be interesting to see. I don't really see Cod on GP creating any noteworthy spike in hardware sales either. Increase in subs, sure, but it's also not exactly cheap either for consumers.
 
rockets said:
Hardware being massively down not really a shocker. MS trying to decouple gamepass and Xbox will be interesting to see. I don't really see Cod on GP creating any noteworthy spike in hardware sales either. Increase in subs, sure, but it's also not exactly cheap either for consumers.
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Unless Black Ops 6 is genuinely unplayable on last gen there's also no incentive for anybody to upgrade for that game either.
 
This type of big collapse for hardware remind a lot what happened to 3DS in CY 2014.
(And 2014 is roughly aligned with XBS 2024 on 3DS life)

Doing the full comparaison it's really the same trend with just 3DS being worse (but also coming from higher numbers):

3DS (2013)3DS (2014)XBS (2023)XBS (2024)
Jan-Mar-41%-52%-30%-31%
Apr-Jun-25%-41%-13%-42%
Jul-Sep-22%-49%-7%
Oct-Dec+1%-36%+3%
CY-13%-41%-9%

3DS is units while Xbox Series is in revenue.
In units Xbox Series X increasing it's share can mean slighty worse decrease.

At this point of time peoples were exepting 3DS to sell way less less than GBA lifetime (like 15M/20M less).
The great hold 3DS had in the following years thanks to New 3DS and Pokemon Go was not really what most exepted.
 
Evilms said:
image.png


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FY24 Q1FY25 Q1 FT
Total3.1614.267 (+35%)
Xbox total3.4913.33 (-5%)
ATVI--,---/--,-- (Net/GAAP Rev)1.264 (XB platform rev not inc)

We didn't get ATVI Q3 2023 results afaik. Xbox revenue for the year for ABK was $850M prior to the acquisition, so estimate $150M for non-holiday Qs.

ATVI Q3 2024 = $1.4B
ATVI Q2 2022 = $1.78B

GodlyTrident said:
It's funny that despite low-balling the Azure missing 1% affected stock that much. So I guess low-balling makes sense.
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The 1% miss isn't the reason the stock tanked. The Azure growth story is starting to slow down and AI revenues are not picking up like expenditure or what the industry claims it will be.
 
Astral_lion02 said:
This type of big collapse for hardware remind a lot what happened to 3DS in CY 2014.
(And 2014 is roughly aligned with XBS 2024 on 3DS life)

Doing the full comparaison it's really the same trend with just 3DS being worse (but also coming from higher numbers):

3DS (2013)3DS (2014)XBS (2023)XBS (2024)
Jan-Mar-41%-52%-30%-31%
Apr-Jun-25%-41%-13%-42%
Jul-Sep-22%-49%-7%
Oct-Dec+1%-36%+3%
CY-13%-41%-9%

3DS is units while Xbox Series is in revenue.
In units Xbox Series X increasing it's share can mean slighty worse decrease.

At this point of time peoples were exepting 3DS to sell way less less than GBA lifetime (like 15M/20M less).
The great hold 3DS had in the following years thanks to New 3DS and Pokemon Go was not really what most exepted.
Click to expand...
3DS was initially boosted by its price cut while Xbox got that pandemic/PS5 shortages bump so it checks out.
 
We can also now get a clear picture of the Xbox business decline:

Phil Sept 2022 Testimony:
  • Minecraft at $1B annual revenue
  • PC revenue for the first time $1B
Apr 22 leak:
  • $6.6B 3P transactions console
  • $0.6B 1P revenue console
We know Bethesda had revenue of $0.8B before being bought. So with that and MC in mind, around $2B for Xbox 1P on all platforms seems right.

We know sub revenue is $4B+ from Phil.
C&S = 4 + 6.6 + 2 = 12.6
HW rev peaked at $3.8B and is now ~$3.4B.
Total = 12.6 + 3.4 = $16B, fits perfectly with Xbox peak revenue of $16.2B

However FY24, XB yearly revenue is $15.38B, a decline a $1B, despite growth in sub revenue, PC and off platform revenue. And so we can see that Xbox software unit sales revenue has declined from $7.2B -> $6.2B in roughly 2 years.

And thats what Nadella and Amy are very worried. Xbox console revenue is still the majority of their xbox revenue, 80%+ comes from software and subs on xbox hardware. If that goes the way of the dodo then there is a $14B dollar revenue hole....

Screenshot-2024-07-31-at-11-43-52.png
 
enpleinjour said:
However FY24, XB yearly revenue is $15.38B, a decline a $1B, despite growth in sub revenue, PC and off platform revenue. And so we can see that Xbox software unit sales revenue has declined from $7.2B -> $6.2B in roughly 2 years.

And thats what Nadella and Amy are very worried. Xbox console revenue is still the majority of their xbox revenue, 80%+ comes from software and subs on xbox hardware. If that goes the way of the dodo then there is a $14B dollar revenue hole....

Screenshot-2024-07-31-at-11-43-52.png
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Throwing away a business model that nets you ~30% royalties on 3rd party software, a business which is extremely difficult to break into, will be 1) massively stupid and 2) almost entirely Nadella's fault for penny-pinching at the worst possible moment.

The trajectory Microsoft's leadership are putting Xbox onto is little more than a large 3rd party publisher. They've made gamepass into a worse value proposition which is less differentiated than PS+, while still not fixing their 1st party production issues (and 1st party software is no longer even exclusive to Xbox consoles anyway). These are literally the only unique selling points Xbox have over Sony/Nintendo/Steam. Sony will win another generation over them by default at this rate.
 
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