Microsoft’s gaming income climbed substantially year over year, according to its Q3 income report. However, the dramatic increase in earnings is misleading because the majority of it is simply a result of Activision Blizzard’s addition (and King!).
For the third quarter of fiscal 2024, Microsoft reported gaming revenue up 51% year over year, or $1.8 billion, to a total of $5.45 billion. It’s a historic Q3 for the sector, but it comes with a disclaimer. According to the Activision Blizzard acquisition, 55 points of that net impact came from the Xbox content and services revenue that weren’t directly related to Activision Blizzard, which was actually down 4% year over year. Next quarter, we saw a similar situation, and it almost certainly will happen again in the coming months.
Profits from Xbox information and services are comparable. It’s off 62% year over year, but with 61 points of online effects from Activision Blizzard, meaning it’s just up 1%. And hardware revenue, which wasn’t touched by the acquisition, is down 31% due to fewer consoles sold.
In Microsoft’s 10-Q, there are a number of different nuggets that show how Activision Blizzard is having an impact on both the gaming sector and the business as a whole. Operating expenses, for instance, were up $1.3 billion or 41% year over year for the More Personal Computing division (of which Gaming is a part) last quarter, 43 points of which came from the acquisition. And research and development costs, in specific, are up $669 million, to be specific. That’s off 10% year over year for the More Personal Computing next quarter, 9 details of which were from Activision Blizzard. Sales and marketing costs, too, were up effectively from the acquisition because were general and operational expenses.
It’s expensive to buy another great company, even beyond the $69 billion Microsoft paid for it in the first place. In the future, when we can compare game revenue in other rooms to this one and see if Xbox was able to leverage its pricey purchase, how much more will Activision Blizzard actually cost Microsoft.
Update 3:08 pm PT: In the earnings call today, Xbox projected a very similar quarter away, with gaming sales growth in the lower-to-late 40s for Q4, with about 50 points of online impact from Activision Blizzard. Similar to Activision Blizzard, growth in Xbox content and services is anticipated to be in the large 50s, with about 60 points of online impact. Additionally, electronics is once again anticipated to rise year over year.
Initial story continues: However, earlier today, Blizzard announced it would not be holding BlizzCon in 2024, a decision that comes no longer after a series of Xbox-large cost-cutting measures that led to the layoffs of 1,900 people.
