Xbox Q2 revenues down 13%, but declines offset by Game Pass growth

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Despite increases in its overall revenue, Microsoft has posted declines from its Xbox division for the latest quarter of its financial year.

While the company does not share specific revenue figures for each of its segments, it did report that gaming revenues were down 13% for the three months ended December 31, 2022, as were Xbox hardware revenues, with Xbox content and services revenues down 12%.

However, the platform holder was quick to emphasise these declines were partially offset by growth from its Xbox Game Pass subscription business, and a record number of active players.

Here's what you need to know:

The numbers

• Revenue: $52.7 billion (up 2% year-on-year)
• Net income: $16.4 billion (down 12%)
• Operating income: $20.4 billion (down 8%)

• More Personal Computing (incl. Xbox) revenue: $14.2 million (down 19%)
• Gaming revenue: Down 13%
• Xbox content and services revenue: Down 12%
• Xbox hardware revenue: Down 13%
• Monthly active users (gaming): 120 million

The highlights

The declines in More Personal Computing revenues were attributes to a mix of Microsoft's Windows, Devices and Gaming divisions, but the company emphasised that these declines were in line with expectations.

For example, Xbox content and services revenue grew by 10% in the same period last year, boosted by launch of Halo Infinite and Forza Horizon 5. With no comparable releases this year, Microsoft was expecting a decline for the past quarter.

In addition to the lack of first-party launches, Microsoft also cites lower monetisation of third-party content as a factor, although this was partially offset by growth in Xbox Game Pass subscriptions.

In fact, CEO Satya Nadella told investors during the latest earnings call that Microsoft saw "new highs for Game Pass subscriptions, game streaming hours and monthly active devices."

He also revealed the monthly active player count of 120 million for the quarter was a new record for the company.

Most of Microsoft's revenue growth in the second quarter of its fiscal year came from its Intelligent Cloud division, up 18% year-on-year to $21.5 billion.

Nadella also pointed to the role of this segment in helping to advance the use and availability of AI, saying: "The next major wave of computing is being born, as the Microsoft Cloud turns the world's most advanced AI models in a new computing platform.

"We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI."

Earlier this month, Microsoft announced it plans to add AI capabilities to all of its products – and our managing editor Brendan Sinclair shared his own thoughts on this 'doing more with less' notion in This Week In Business.

Looking forward, Microsoft expects gaming revenues to continue declining during the next quarter "in the high-single digits," chief financial officer Amy Hood said during the earnings call.

The company also expects Xbox content and services revenue to decline in the low-single digits, again thanks to Game Pass growth offsetting lower monetisation in first- and third-party content.

However, Nadella said the company is "energised by our upcoming line-up of AAA game launches," with more details on some of its future titles due to be shown during tonight's Xbox Developer Direct.

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