Microsoft Gaming Revenue Down by $905 Million, but It’s Probably Fine

The company still made over $11 billion.

Microsoft today released its regularly-scheduled financial report for the second quarter of fiscal year 2020, which encompasses the three month period ending December 31, 2019, for reasons that no one on this or any other planet can adequately explain. All things considered, Microsoft had a very strong holiday season; it brought in $36.9 billion in revenue and was able to keep $11.6 billion of that as income, which is a 38 percent increase over the same three month period during the previous fiscal year. Every subdivision of Microsoft’s global empire reported a year-over-year revenue increase between six and 62 percent, depending on the outfit: Revenue from LinkedIn was up 24 percent, revenue from Microsoft’s Azure cloud services was up 62 percent, and so on. Microsoft’s games business was the only segment to report a loss for the period.

All in all, games did 21 percent worse for Microsoft as to compared to the previous holiday season, with overall gaming revenue down to the tune of $905 million. Hardware revenues were down 43 percent year-over-year; not only did fewer people buy Xbox hardware, but said hardware was sold at lower prices than it was in the year prior. Non-hardware gaming revenue, which Microsoft classifies as “Xbox content and services,” was down by 11 percent, or $295 million. Microsoft claims the decline is mostly due to the waning popularity of an unnamed third-party game (read: Fortnite), which drove a huge percentage of the revenue recorded in this segment over the previous fiscal year. Despite this, Microsoft says that there has been strong growth among its various gaming subscription services (Xbox Live Gold, Xbox Games Pass), which helped offset some of the reported year-over-year loss.

It’d be easy to look at all these figures and assume that Microsoft’s games business is in a heap of trouble, but these numbers aren’t actually all that surprising. Hardware sales for existing consoles generally take a dip once the next generation is announced, and this report covers the first holiday shopping season since the announcement of Project Skarlet, which we now know as the Xbox Series X. Furthermore, it’s not really Microsoft’s fault if kids aren’t as into buying Fortnite skins as they were last year, so that $295 million year-over-year loss, while substantial, is more of an anomaly than a warning sign.

Besides, the company made $11.6 billion in profit in three months. Even if Microsoft’s Xbox and PC initiatives continued to lose money at their current rates (they won’t), it could go on like this indefinitely. But with the Xbox Series X coming out next holiday season (or Q2 FY2021 for those playing along at home), it probably won’t have to. Even if Microsoft sells the Xbox Series X at a loss, the additional revenue from digital game sales, new subscriptions, controller sales, and in-game transactions should push that 11 percent loss back into the black. Of course, Sony is hoping the PlayStation 5 will similarly improve its fortunes, but there’s probably enough money floating around for both companies to have a strong shopping season next winter.

And hey, speaking of money floating around, Microsoft paid out $3.9 billion in dividends to its shareholders during the quarter in question. The valuable work these people did to earn these billions of dollars was, of course, the mere act of owning stock in Microsoft. Meanwhile, someone making $7.66 an hour at a Wendy’s somewhere is being told that they have exactly four seconds to assemble a hamburger once the order has been placed. Just something to think about!