How Important Is the Xbox to Microsoft?

With the unveiling of the new Xbox Series X on Friday, we take a look at just how important the Xbox segment is to Microsoft’s overall business plan.

Dec. 16, 2019

Microsoft’s (NASDAQ: MSFT) gaming division, Xbox, announced the release of its next-generation console, the ‘Xbox Series X’ — no brain cells were harmed coming up with that name. 

As Xbox gets the jump on Sony (NYSE: SNE) with its next-gen release, an important question arises: how important is the Xbox division to Microsoft? 

Back in the summer, Microsoft reported some worrying numbers on the Xbox console when it saw a 10% decline in its gaming business, largely thanks to a 48% fall in sales of console hardware from 2018. Fast forward to October and Xbox content and services revenue was relatively unchanged, at less than 1% revenue growth. To note this in Microsoft’s fiscal first-quarter report, Xbox had a total of one line in a 6-page report. 

How much money is Xbox worth?

Following the release of the new Xbox on Friday, Microsoft’s stock price rose less than 1%.

Compare this to when a company like Apple (NASDAQ: AAPL) or Google (NASDAQ: GOOGL) releases new hardware, which usually causes a more significant move in a stock.

In 2018, Microsoft delivered $110.4 billion in revenue, while Microsoft gaming accounted for only 9% of this. Likewise, Xbox’s main competitor the Playstation was just last week recognized as the world’s best-selling console brand of all time, having sold more than 450 million of the popular gaming units over the past 25 years. This sent its stock up more than 1%. 

So why is Xbox important to Microsoft then?

The reality of the situation is that hardware sales are not the most important asset in Xbox’s arsenal, but rather its subscription numbers. Microsoft noted 14% growth in active Xbox Live users back in July, as well as growth in subscription revenue. 

The rise in subscriptions and online activity are very important going forward due to the development of the company’s Game Pass subscription service, which works across both PC and Xbox. This service is also essential to Microsoft’s upcoming streaming plans, meaning that the Xbox has been laying the groundwork for the company’s overall media strategy in the future. 

Think about Amazon’s (NASDAQ: AMZN) Prime service, which was originally just fast delivery. Now it includes a streaming service, music, live sports, and more. How long before Microsoft’s Game Pass becomes an umbrella subscription for much of its entertainment segment?

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in Amazon, Apple, Google, and Microsoft. Read our full disclosure policy here.