Microsoft reported in its second-quarter earnings call today that Xbox hardware sales were down despite gaming revenue growing 9% year-over-year.
The revenue increase was instead driven by Microsoft's acquisition of Activision Blizzard and Xbox Game Pass subscription numbers. Xbox hardware sales fell 25% due to lower sales of the company's consoles.
The company hasn't said much about the game overall, which is interesting. But Microsoft is investing heavily in both AI and cloud services, with revenue from the latter segment rising 23% year over year to $168.9 billion.
“This quarter, Microsoft cloud revenue exceeded $50 billion for the first time, a 26% increase compared to the same quarter last year,” Microsoft CEO Satya Nadella said in the earnings call.
Microsoft has essentially taken over the cloud gaming market thanks to Game Pass, which raised prices last year. Despite the backlash many consumers felt at the time, healthy subscriber numbers appear to be offsetting the company's hardware losses.
Xbox Game Pass is still a strong value, but it's adding long-term costs.
Xbox Game Pass has historically offered incredible value for players looking for a rotating library of games, but it's been struggling to find balance lately.
“In gaming, we're committed to delivering great games on Xbox, PC Cloud, and all other devices, and we've seen record numbers of PC players and paid streaming minutes on Xbox,” Microsoft CFO Amy Hood said on the call.
Microsoft may be in a unique position at a time when gaming hardware can face issues due to lack of RAM. Thanks to its partnership with OpenAI and significant investments in cloud infrastructure, Xbox may be in a better position than many people think.
