Xbox Sales Drop But Microsoft’s Gaming Division Grows in Revenue

Microsoft’s Xbox sales declined by 7 percent, while the gaming system’s content and services grew 13 percent in revenue, the company said on Tuesday as part of its earnings report.

Total revenue for the gaming division grew 8 percent for the latest financial quarter, which follows the tech company becoming a video games powerhouse by closing a $68.7 billion deal to acquire Activision Blizzard.

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The largest transaction in the history of Microsoft, led by CEO Satya Nadella, will make it the world’s third-largest gaming company by revenue, behind Tencent and Sony.

The takeover brings together Microsoft, which owns the Xbox game platform and Xbox Game Studios — owner of Starfield developer Bethesda Softworks and 343 Industries, among other game publishers — with Activision, maker of the Call of Duty, Diablo, Warcraft and Tony Hawk franchises, among others, and owner of Candy Crush and Farm Heroes Saga maker King.

During the first quarter, Microsoft’s Xbox hardware revenue declined 7 percent. At the same time, Xbox content and services revenue continued to grow on the strength of monetizing third party and first-party content — including from the launch of Starfield — and growth for Xbox Game Pass, the tech company’s subscription service that gives users access to Xbox games on consoles, PCs and mobile devices.

Overall revenue at Microsoft rose 13 percent to $56.5 billion, and net income jumped 27 percent to $22.3 billion.

“Together we will have advance our goal of bringing great games to players everywhere,” Microsoft CEO Nadella told analysts during a conference call as he touted anticipated gains from acquiring Activision Blizzard, which isn’t yet incorporated in Microsoft earnings results.

The goal will be using new game franchises like Candy Crush, Diablo and Halo to sell more Xbox consoles and drive additional subscribers to the Xbox Games Pass service.

“With Activision Blizzard, we now have added significant depth to our content portfolio,” Nadella said. Microsoft expects in the second quarter to see gaming division revenue growth at north of 45 percent, with most of that net impact, or around 35 percent, coming from incorporating Activision Blizzard.

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