Activision Blizzard boosts Microsoft financials as Xbox hardware revenue falls

Microsoft has shared its fiscal report for the third-quarter ended March 31, 2024, and Activision Blizzard is doing some heavy lifting where the company's video game operations are concerned.

Consolidated revenue in the More Personal Computing segment—which houses (among other things) Microsoft's video game business—increased by 17 percent year-on-year to $15.6 billion.

Digging deeper, Xbox content and services revenue increased by 62 percent year-on-year, but that upswing was driven by 61 points of net impact from the company's Activision Blizzard merger.

Gaming revenue increased by 51 percent year-on-year, with Microsoft attributing that surge to the perviously mentioned "growth" in Xbox content and services. Xbox hardware revenue, however, decreased by 31 percent "driven by lower volume of consoles sold."

What's notable is that Microsoft CFO Amy Hood fully expects Xbox hardware revenue to tumble again in Q4. During an earnings call, Hood said Activision Blizzard titles are already delivering "better-than-expected" performances—Call of Duty was singled out for praise—which has positively impacted Xbox content and services.

"At a company level, Activision contributed a net impact of approximately 4 points to revenue growth, was a 2 point drag on operating income growth, and had a negative 4 cent impact to earnings per share," said Hood.

"A reminder that this net impact includes adjusting for the movement of Activision content from our prior relationship as a third-party partner to first-party, and also includes $935 million from purchase accounting adjustments, integration, and transaction-related costs."

Looking ahead to Q4, Hood said Microsoft expects gaming revenue growth in the low to mid-40s, including 50 points of net impact from the Activision merger. The company also anticipates Xbox content and services revenue growth in the high 50s, again driven by roughly 60 points of net impact from its Activision acquisition.

"Hardware revenue will decline again year-over-year," she added, suggesting Xbox Series X | S consoles won't exactly be flying off shelves.

Microsoft CEO suggests targeting rival console platforms is paying off

Microsoft CEO Satya Nadella has indicated hardware sales aren't the be-all and end-all. Weighing in on Xbox, he said the company remains "committed to meeting players where they are and bringing great games to more people on more devices."

Microsoft has been expressing that sentiment for some time, but earlier this year started making good on that promise in a huge way by bringing some of its first-party titles—including Sea of Thieves and Grounded—to rival console platforms. Nadella feels that decision is already paying off.

"We're expanding our games to new platforms, bringing four of our fan-favorite titles to Nintendo Switch and Sony PlayStation for the first time," he said. "In fact, earlier this month, we had 7 games among the top 25 on the PlayStation store, more than any other publisher."

Nadella said the company also set Q3 records for game streaming hours, console usage, and monthly active devices, pointing to the success of Activision Blizzard titles like Diablo IV and Call of Duty as cause for optimism.

"Last month we added our first Activision Blizzard title, Diablo IV, to our Game Pass service. Subscribers played over 10 million hours within the first 10 days, making it one of our biggest first party Game Pass launches ever," he added.

"We've also been encouraged by the ongoing success of Call of Duty’s Modern Warfare III, which is attracting new gamers and retaining franchise loyalists."

There was no mention of the recent Xbox layoffs, which resulted in 1,900 people losing their jobs in pursuit of "sustainability," from either Nadella or Hood.