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The big picture: Some analysts predicted the Xbox Series X would outsell the PlayStation 5 in 2020. Instead, Sony's console has likely sold more than double the Xbox Series S and X. The situation is so dire that Microsoft hasn't disclosed precise unit sales in over a year and has begun releasing its games on competing consoles. The company's latest earnings call certainly won't improve investor outlook concerning the future of Xbox hardware.
Xbox console sales suffered a staggering year-over-year decline during the quarter ending June 30. The situation regarding Xbox hardware has been dire for a while, but Microsoft's larger gaming business has performed well.
Although revenue from Xbox hardware decreased by 42 percent compared to the same quarter last year, general gaming revenue increased by 44 percent. Moreover, revenue from Xbox content and services rose by 61 percent. Microsoft didn't specify what that number encompasses, but it likely aggregates Xbox software, Game Pass subscriptions, PC games sold through Microsoft's storefront, and games the company published on all platforms.
Microsoft said its $69 billion acquisition of Activision Blizzard significantly impacted gaming financials, including first-party titles that performed above expectations. Since the purchase, revenue from games like Call of Duty, Diablo, Overwatch 2, and Candy Crush Saga has contributed to the company's bottom line. Conversely, third-party software revenue was weak, but Microsoft didn't elaborate on that area.
The company expects the trends it reported to generally continue into the next quarter, with overall gaming revenue rising by over 30 percent. Xbox content and services could grow by over 50 percent, but Microsoft predicts that console hardware sales will keep falling.
Solid Xbox unit sales numbers haven't emerged since last year when the console manufacturer confirmed that Series S and X had sold over 21 million combined. In comparison, Sony has sold around 56 million PlayStation 5 consoles as of the end of April 2024. Meanwhile, Nintendo has sold 141 million Switch units, though it has been on the market for nearly three years longer than the Sony and Microsoft machines.
A healthy outlook for gaming revenue despite struggles with hardware sales suggests that Microsoft's hardware-agnostic strategy is working. The company has focused on offering games on various hardware platforms and over the cloud. Despite de-emphasizing Xbox hardware somewhat, ambitious plans for a successor to the console are in the works.