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Xbox Gaming and Hardware Revenue Drops 13% in December Quarter, Xbox Game Pass Sees Growth

Xbox Gaming and Hardware Revenue Drops 13% in December Quarter, Xbox Game Pass Sees Growth - Sales

by William D'Angelo , posted on 24 January 2023 / 9,191 Views

Microsoft has released its earnings report for the second quarter of the 2023 fiscal year, which ended up December 31, 2022.

Xbox gaming revenue declined 13 percent year-on-year from $5.44 billion to $4.76 billion. 

Xbox Content & Services revenue decreased 12 percent. This was due to a "a strong prior year comparable" with a decline in first-party content and lower monetization in third-party content. This was "partially offset by growth in Xbox Game Pass subscriptions."

Xbox hardware revenue decreased 13 percent year-on-year. This was driven by "lower price and volume of consoles sold."

Xbox Gaming Revenue Grew Slightly in September Quarter, Xbox Game Pass Has Continued Growth

There was a new record set for Xbox with 120 million monthly active users during the quarter. There were also new highs for the number of Xbox Game Pass subscribers, number of hours gaming, and monthly active devices.

"We saw new highs for Game Pass subscriptions, game streaming hours, and monthly active devices," said Microsoft CEO Satya Nadella during Microsoft's earnings call. "And monthly active users surpassed a record 120 million during the quarter."

Overall, Microsoft reported revenue up two percent year-over-year to $52.7 billion and net income down 12 percent to $16.4 billion.

"The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform," said Nadella. "We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI."

A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can contact the author on Twitter @TrunksWD.

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UnderwaterFunktown (on 24 January 2023)

So if I'm reading this right this confirms that holiday quarter sales were down YoY? (lower price AND volume of consoles sold). Probably close to the same sales as last year though if revenue is "only" down by 13 % despite the Series S discount, but still a rough result.

  • +3
Legendary_W (on 25 January 2023)

I have a question. What does the 120 million monthly active users encompass? Individual Xbox Microsoft accounts? Meaning, it counts multiple users per individual console + people logging on PC for gamepass?

It's a pretty high number, a 120mill active userbase is no small feat, it's important to understand if it means people who actually opened and played a game with their microsoft accounts or just people on PC that passively logs in when they turn it on.

  • +1
loy310 (on 24 January 2023)

A drop at this point in the gen where they should have growth is very bad. x/s and this gen will be their worst performing console and generation.

  • 0
method114 loy310 (on 24 January 2023)

Yea this is not good for MS. Looks like people are getting tired of the lack of games that MS is releasing. They might be able to turn things around this year with some of their bigger games coming out this year.

  • 0
smroadkill15 loy310 (on 24 January 2023)

Gotta love the doom and gloom post. You mean there was a drop in a quarter when they released zero AAA games compared to the quarter with Halo and Forza. Color me shocked 😲. Spouting complete nonsense isn't a good look.

  • +3
Qwark smroadkill15 (on 25 January 2023)

Unlike last year there where not massive shortages this year around. Switch also sold less so there was also less competition.

Also didn't people buy Xbox for gamepass, that's their big deciding factor right. There where even a few day one for free games on gamepass.

  • +2
smroadkill15 Qwark (on 25 January 2023)

And? There being no shortage isn't going to make people go out and buy a console if there aren't any games worth buying compared to what the competition offered.

Game Pass can only go as far as the games. Xbox had the better 2021 lineup by a long shot, especially during the holiday so it really comes to no surprise.

  • 0
BonfiresDown loy310 (on 24 January 2023)

Original Xbox sold like 25M so you expect Series sales to fall off a cliff and never recover right about now.

  • +1
shikamaru317 loy310 (on 24 January 2023)

No, just no. 2021 was an all-time record year for Xbox with multiple Holiday quarter exclusives driving sales, including 2 big AAA exclusives, Halo Infinite and Forza Horizon. They had no AAA Holiday exclusives for 2022 meanwhile due to delays on Starfield and Redfall. Even with no exclusives, sales are only down by 13% compared to their biggest Holiday quarter ever. Revenue wIse, Holiday 2022 is still their 3rd largest of all-time, while hardware wise it is still in the top half of the 21 years they have been releasing consoles, and possibly even top third. To look at that and say that Xbox Series will sell less than both Xbox One (55m~) and OG Xbox (25m~) is utterly ludicrous.

They had an astonishingly good 2022 for a console with no AAA exclusives releasing that year, and I can guarantee based on how many AAA studios Xbox now owns that they will never have a single year like this with no AAA exclusives ever again. With 18 AAA capable teams now across 16 AAA studios, Xbox should have no problems whatsoever releasing at least 3 AAA exclusives per year from 1st party alone starting in 2023 (where 3 AAA exclusives are already announced, Starfield, Redfall, and Forza Motorsport), plus 2nd party AAA exclusives (we know of several of those currently in development), resulting in at least 4 AAA exclusives most years. So things are only looking up for Xbox sales starting in 2023.

  • 0
AJNShelton shikamaru317 (on 25 January 2023)

We saw you Phil.

Don't forget that 2021 had supply issues, while 2022 was way less severe, and even with discounts, yet had it sales going down, so I wouldn't say "only" when supply already starts to exceed demand, even with discounts.

  • +3
shikamaru317 AJNShelton (on 25 January 2023)

I can guarantee you right now that supply was not exceeding demand for 2022. I know I checked my Walmart about 20 times throughout 2022 and they only had Series X in stock 1/20 times when I checked, and about 14 of those 20 times they were out of Series S as well. Looking on their website right now, I see that Series X is currently out of stock at all 8 of my closest walmarts, while Series S is only in stock at 4 of the 8. Trust me, this is not what it looks like when supply is exceeding demand. If their supply can't even meet January demand right now (one of the weakest months for console sales), then you know they don't have the production capabilities to say that supply is exceeding demand. Phil himself said that supply for Xbox Series won't meet demand until the June-September Quarter of 2023 as I recall.

  • 0
DonFerrari shikamaru317 (on 25 January 2023)

So you want us to believe they were able to produce less this quarter than on same quarter of 2021? That they are less proficient in the manufacturing process and it is losing maturity? In the other post you said it was because of the lack of games being released and that it was ok even though it isn't something common for successful platforms.

  • -4
DonFerrari shikamaru317 (on 25 January 2023)

If you were talking about SW sales dropping on the quarter due to no releases sure it would make sense. When talking about console sales when they had a major discount it really doesn't. We shall see how well 2023 will be.

  • -1
shikamaru317 DonFerrari (on 25 January 2023)

I'd hardly call a limited time price drop on Series S from $300 to $250 a major discount, and Series X is still $500. If you look back over Xbox's console history, all 3 previous Xbox generations had larger discounts by their 3rd Holiday than Xbox Series did. Xbox One had dropped from $500 at release to $350 as a permanent price (with $300 limited time Holiday deals) by it's 3rd Holiday, while 360 had dropped from $400 to $350 as a permanent price on it's higher end 20 GB SKU and from $300 down to $280 as a permanent price on it's cheaper 360 Core SKU (with limited time Holiday discounts for the 3rd Holiday at $320 and $250 as I recall) . OG Xbox was down from $300 to $180 by it's 3rd Holiday as a permanent price drop. So not only has Xbox Series, S or X, yet to see a permanent price drop like all 3 previous Xbox consoles had seen by this point, but only Series S has seen a Holiday discount, and that Holiday discount was smaller than the 3rd Holiday discounts on earlier Xbox consoles. It's also worth noting that Xbox One was already bundling multiple games with the system by it's 3rd Holiday (in addition to the price cuts) while Xbox Series S only had a price cut on the non-bundle SKU, and the bundle SKU at $300 isn't even a bundled game, it's some bundled microtransaction cosmetics and currency for some GaaS games like Fortnite and Rocket League.

Also exclusives drive console sales, no exclusives for the quarter obviously means hardware sales will be down as well. Xbox tried to compensate for no Holiday exclusives by discounting Series S from $300 to $250 for the Holiday only, and it only partially compensated for it, which is why hardware volume sales are down very slightly (13% drop is for revenue only, because S was $50 cheaper than the previous year, that accounts for most of the hardware revenue drop, volume sales were likely only down by 1 or 2%, Microsoft doesn't say).

  • 0
DonFerrari shikamaru317 (on 25 January 2023)

There were promotions going as low as 200 for Series S, against PS5 lowest being 400 and even being as cheap as Switch Lite and certainly Switch OLED. Still outsold by both. And if you claim Series X wasn't available the pricepoint of it would be irrelevant right?
I'll tell you a secret, inflation exist and pricecuting on HW is something that wasn't happening often anymore for quite some time. Now I'll tell you another secret, PS5 had a price increase in the same time and saw increase in HW sales.
You claim HW sales were slightly lower only, based on MS not saying?

  • -1
Machina loy310 (on 25 January 2023)

A drop in sales for the Quarter YoY is certainly bad, but the second part of your post - 'this gen will be their worst performing console and generation' - is going to be disproved later this year when XS overtakes the original Xbox in sales. It's also comfortably outpacing Xbox One (which peaked in its second full year), so barring something disastrous it'll overtake that platform in a few years' time.

  • +6
VAMatt (on 27 January 2023)

Analysts were expecting gaming revenues to decrease from the last year. Anybody that's looking at this thing as a business, and not as someone trying to make a fanboy point, understands why revenues were down. This is not like some big disappointment for Xbox.

Of course it is not good that revenue fell. But that's what happens when you don't have any big first party releases in the holiday quarter. But, more than that, they were going up against a massive quarter in 2021 when the gaming hobby was running hot due to covid, and Microsoft launched with two of their big guns (Halo and Forza Horizon).

Revenue is down, and bottom line profits are down for essentially everybody in big tech.

  • -1
Kakadu18 (on 25 January 2023)

Everything is disappointing except for Game Pass. But there's no indication by how much it grew.

  • -1
DonFerrari (on 24 January 2023)

So they don't mention how much the GP subs grow and even with the heavy promotions for Series S and they having better stock they sold less than last year? Is xbox already on a phase of stable and soon to start decreasing yoy?

  • -2
darthv72 DonFerrari (on 24 January 2023)

what it means is that while the number of units were up by comparison to last year, the revenue generated from them was down. which basically means they sold more of the series s than x which didnt generate as much $$ as it would have if it were the other way around. They dont make as much $$ off the S like they do the X and i think both are sold at a loss anyways. GP subs increased but obviously not enough to offset anything.

  • 0
Signalstar darthv72 (on 24 January 2023)

From the article: Xbox hardware revenue decreased 13 percent year-on-year. This was driven by "lower price and volume of consoles sold."

Seems pretty unambiguous that overall sales were down.

  • +5
darthv72 Signalstar (on 24 January 2023)

...for this quarter of FY23 as compared to the same quarter in FY22.

  • -1
Signalstar darthv72 (on 24 January 2023)

Yes. Nothing I or anyone else said suggested otherwise other than your post...

  • +1
DonFerrari darthv72 (on 24 January 2023)

Nope, unless article is wrong, it says sales itself are lower as well.

  • +2
darthv72 DonFerrari (on 24 January 2023)

d'oh... i just realized they are talking about the quarter... not the year. So in this last quarter, sales were down compared to the previous same quarter in FY22. But overall (for the year) unit sales increased 21% over 2021. According to the info here on this site.

  • 0
kazuyamishima darthv72 (on 24 January 2023)

Adjustments will be done.

  • 0
trunkswd kazuyamishima (on 24 January 2023)

Adjustments done for now. Xbox Series X|S sales when you add in the last week of 2022:
Lifetime ~20.36M
2022: ~9.29M

  • +9
kazuyamishima trunkswd (on 24 January 2023)

Thank You.

I can't speak for all, but I think most people on this site really appreciate the effort and work you do, especially since the data is very scarce nowadays.

Keed doing the good work!!

  • +12
trunkswd kazuyamishima (on 24 January 2023)

You're welcome. The data is hard to come by for sure. Especially with Xbox sales. I would love for our estimates to be more accurate when they are initially posted, but I do what I can.

  • +12
DonFerrari trunkswd (on 25 January 2023)

Looking forward to the article comparing full year sales comparison for the major consoles.

  • -2
DonFerrari darthv72 (on 25 January 2023)

Official data isn't available, so VGC could very well be right or wrong for YOY for the full year.

  • -2