At a glance:
- Microsoft's gaming revenues rose 6% YoY to $3.74 billion
- Xbox content and services up 4%, account for 81% of revenue
- Hardware revenue rose 14% thanks to increased supply of Xbox Series X|S
Microsoft has released the results for the third quarter of its fiscal year, showing a strong performance for the company's Xbox business.
For the three months ended March 31, 2022, gaming revenues were up 6% year-on-year. Microsoft added that this is improving on an already solid comparable quarter in 2021, a year that benefited from the recent launch of Xbox Series X|S and some continued stay-at-home measures.
Niko Partners analyst Daniel Ahmad broke this down further, revealing revenues reached $3.74 billion and declaring this the "best non-holiday quarter" in Xbox history.
Ahmad reports Xbox content and services (which encompasses game sales, digital transactions, subscriptions such as Xbox Game Pass, third-party game royalties, Xbox-related cloud services and advertising) accounts for 81% of gaming revenues or around $3.02 billion.
This is 4% up when compared to the same period in 2021, and the first time this segment has generated more than $3 billion during the first quarter of a calendar year.
However, Microsoft's chief financial officer Amy Hood mentioned during the company's earnings call that this growth was "below expectations."
Xbox hardware revenues, meanwhile, rose 14% thanks to both continued demand and increased supply for Xbox Series X|S.
During the call, Hood warned that production shutdowns in China due to the latest spread of coronavirus will likely impact Xbox hardware, as well as Surface and Windows original equipment manufacturing.
Later, when discussing segment guidance, Hood said Microsoft expects gaming revenues to decline by mid-to-high single digits due to "lower engagement hours year-over-year as well as constrained console supply."
Xbox content and services revenue is expected to decline mid-single digits, although engagement hours are expected to remain higher than levels recorded prior to the pandemic.
In his own portion of the earnings call, Microsoft CEO Satya Nadella discussed more of Xbox's accomplishments, starting with the claim that the platform holder has "taken share globally for two quarters in a row,"
He added that Xbox Series X|S was the market-leading next-gen console during this quarter in the US, Canada, UK and Western Europe. Earlier this week, The NPD Group revealed Xbox enjoyed its biggest March ever in terms of US sales, and that Xbox Series X|S generated the most dollar sales for the past quarter.
Nadella also discussed the growth of Xbox Cloud Gaming, with more than 10 million people having streamed games to date. Xbox Cloud Gaming is only available to Xbox Game Pass Ultimate subscribers, indicating that at least 40% of the 25 million Game Pass subscribers, as revealed earlier this year, are signed up to the higher tier.
The CEO added that the number of hours played by Game Pass subscribers is up 45% and can be measured in billions, although he did not give an exact figure.
Finally, he added that Azure gaming revenue for the first nine months of the fiscal year is up 66%. Last month, Microsoft announced a number of initiatives to make the Azure cloud technology available to more indie developers, which we discussed with the company in detail here.
Ahmad reports that content and services made up 81% of games revenues, with hardware accounting for the other 19%.
Looking at the nine months ended March 31, 2022, games revenues rose 10% year-on-year to over $10 billion. Hardware revenues rose 25%, while Xbox content and services rose 6%.
The growth of games contributed to that of More Personal Computing, the segment in which Microsoft includes its gaming business. Total revenues for this segment rose 11% year-on-year to $14.5 billion for the third quarter.
However, this is actually the smallest division of Microsoft in terms of revenues, behind the $15.8 billion generated by Productivity and Business Processes and the $19.1 billion from Intelligent Cloud.
More Personal Computing is expected to generated between $14.65 billion and $14.95 billion in the final quarter of Microsoft's fiscal year.
Overall, Microsoft's revenues for the third quarter came in at $49.4 billion -- up 18% year-on-year, and a reminder that Xbox only accounts for a small portion of the company's overall business (just 7.5% during this quarter).
Operating income was up 19% to $20.4 billion, while net income rose 8% to $16.7 billion.