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Xbox FYQ1 (July~September) Results: Gaming division grew 16%

reksveks

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But I guess it's just down to COVID "usage".. whether people were subbed or not people I guess bought more games? I dunno, just seems odd to grow a service by a fairly large amount (40%) and have your content and services revenue only go up by 2%.

Yeah, i am going to be holding off proper analysis until we get more numbers and possibly use the sony numbers as proxies for console software content sales. I think alot of it is just trying to account for the covid bump.

There was a weird disconnect as I remember from Sony’s numbers that made me think their ARPU related to network and services increased as they had a 10% growth in revenue despite only having something like a 3% growth in ps+ users. Maybe the ARPU for Gamepass dropped a bit but won't be able to tell or make a good guess yet.
 

onQ123

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Nah, those threads are strictly technical comparisons between two consoles. The sales threads are used to prove how Gamepass is killing the gaming industry and how people only buy games on PS5 or whatever.
There is also a digital only PS5 though & all consoles can download games so this information isn't telling you that the ratio is any different when it come to digital downloads.
 
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Kagey K

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In that case, y'all would be correct that the way I calculated was wrong. However, realistically, I don't think the numbers would be too far off from 20-21 million.
Realistically who gives a fuck?

I only care if they have one subscriber and they only release games for him...... (That's me)

The 20 or 21 million rest of you can feel free to ride my coattails.
 
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reksveks

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Okay, so if I understand it correctly, this growth is about revenue -- 2% growth in GP and first-party revenue
The 2% growth number includes 3rd party sales but they specifically call out 1st party and GP in their commentary (not sure why really but they do)
 

Kagey K

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But this 2% only refers to GP and first-party, right? Not third-party?

I think my calculation was still wrong but not because of the reason you mentioned, but because of the reason R reksveks mentioned.

Okay, so if I understand it correctly, this growth is about revenue -- 2% growth in GP and first-party revenue -- when previously whenever they mentioned GP growth, they mentioned subscribers?

In that case, y'all would be correct that the way I calculated was wrong. However, realistically, I don't think the numbers would be too far off from 20-21 million.
How do you feel about Xbox needs PlayStation now after seeing these numbers and know Deathloop was released during this time frame?

Still feel like they might be missing out by not releasing Bethesda games on PS?

I think this is verification, that they can release games not on PS and it works out fine.
 
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elliot5

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But this 2% only refers to GP and first-party, right? Not third-party?

I think my calculation was still wrong but not because of the reason you mentioned, but because of the reason R reksveks mentioned.

Okay, so if I understand it correctly, this growth is about revenue -- 2% growth in GP and first-party revenue -- when previously whenever they mentioned GP growth, they mentioned subscribers?

In that case, y'all would be correct that the way I calculated was wrong. However, realistically, I don't think the numbers would be too far off from 20-21 million.
It's 2% growth in software. That means subscriptions of all kinds and game sales of all kinds. Microsoft highlighted GP and first party software sales as areas of growth, but a slump in third party made it so the total growth was stagnant
 

Bernd Lauert

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There is also a digital only PS5 though
Yes, and it's selling fuck all compared to the disc version.
& all consoles can download games so this information isn't telling you that the ratio is any different when it come to digital downloads.
When all consoles can download games, but only some consoles can use physical discs, the ratios are likely gonna be different.
 

elliot5

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The 2% growth number includes 3rd party sales but they specifically call out 1st party and GP in their commentary (not sure why really but they do)
Bc it makes them look good. "OUR stuff is doing well, it's the other guys holding us back"
 

Heisenberg007

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The 2% growth number includes 3rd party sales but they specifically call out 1st party and GP in their commentary (not sure why really but they do)
It's 2% growth in software. That means subscriptions of all kinds and game sales of all kinds. Microsoft highlighted GP and first party software sales as areas of growth, but a slump in third party made it so the total growth was stagnant
It includes third-party? Damn, I hate how vague/complicated the Xbox division makes these financial reports. The 360 generation was so much simpler in this regard.

Anyhoo, my apologies for the incorrect calculation and thinking otherwise. Original comment edited.
 
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reksveks

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From the conference call:

Forecasts for revenue growth in Q2 (Oct to Dec):

Gaming: "High single digits."
Assuming say 8%, that's $5.4B. Would be a record holiday.

Xbox Content & Services: "Mid teens."

Hardware will continue to be impacted by supply uncertainty.

Source:
Had to remember that now we are getting into the series x/s launch so that hardware revenue growth is going to be flat/down in the next quarters comparison.

Microsoft needs to find a way to make more consoles or really hope the series s starts selling more (yeah I know its selling well but its not exactly hard to get at the moment)
 

MrFunSocks

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The 2% growth number includes 3rd party sales but they specifically call out 1st party and GP in their commentary (not sure why really but they do)
You're not sure why Microsoft would point out the fact that their 1st party games and services were driving the growth more significantly than it looks?
 

Godot25

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Investors cannot see growth if you're only giving a revenues figure.
No person with an actual interest in financials would only look at revenues to get an idea about how a business is going.

People on GAF want to know how they're actually doing in first place, console war is just an eventual side consequence.
Unfortunately we'll have to accept that Microsoft won't share anything and that is now including Gamepass numbers as well.
Ehh. Yes they can...
Growth is based on revenue and MAU, not on profit (it can be, but it necessarily does not need to be). Netflix was GROWING for years despite being in loss, same for Spotify. Shareholders cares about short term growth in revenue which will get them a huge profit one day.

Microsoft won't share GP number because of obvious PR reasons. Because there was a rumor in july that service has 23 mil. subscribers, which was oversight by Jez Corden who corrected himself. But number ran through the internet. Same for that 30 mil. sub from Take Two CEO, that was around the internet in last few weeks. So if number of subs is less then 30 mil., Microsoft might want to hold onto it so they won't cause sense of disappointment.

Which is pretty obvious thing.
 
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reksveks

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You're not sure why Microsoft would point out the fact that their 1st party games and services were driving the growth more significantly than it looks?
I just would be cautious with the info that I give out but definitely understand their position.

Investors cannot see growth if you're only giving a revenues figure.
No person with an actual interest in financials would only look at revenues to get an idea about how a business is going.
Growth isn't profitability or margin btw. Also some companies don't care about short term profits and/or margins however groups of investors might do. Once we get the ending of this seasons earning call, I will probably do a table of the big companies margin cause I personally think one possible reason that Microsoft doesn't share xbox margin is that its lower than other divisions in the group. That's not the same as unprofitable BTW.
 

Heisenberg007

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Ehh. Yes they can...
Growth is based on revenue and MAU, not on profit (it can be, but it necessarily does not need to be). Netflix was GROWING for years despite being in loss, same for Spotify. Shareholders cares about short term growth in revenue which will get them a huge profit one day.

Microsoft won't share GP number because of obvious PR reasons. Because there was a rumor in july that service has 23 mil. subscribers, which was oversight by Jez Corden who corrected himself. But number ran through the internet. Same for that 30 mil. sub from Take Two CEO, that was around the internet in last few weeks. So if number of subs is less then 30 mil., Microsoft might want to hold onto it so they won't cause sense of disappointment.

Which is pretty obvious thing.
I disagree.

What if growth (not just for GP, but for any other service or division or company) is increasing, but content cost per subscriber is also growing exponentially, resulting in a wider gap b/w revenue and operating loss with each passing day? That kind of "growth" wouldn't be beneficial for anyone.

Ultimately it comes down to profitability, and that's what investors are mostly interested in. They don't care if the profit is being driven by one strategy or the other. In the end, what matters to them is that their investment is bearing fruits both in dividends and capital gain.
 

Godot25

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I disagree.

What if growth (not just for GP, but for any other service or division or company) is increasing, but content cost per subscriber is also growing exponentially, resulting in a wider gap b/w revenue and operating loss with each passing day? That kind of "growth" wouldn't be beneficial for anyone.

Ultimately it comes down to profitability, and that's what investors are mostly interested in. They don't care if the profit is being driven by one strategy or the other. In the end, what matters to them is that their investment is bearing fruits both in dividends and capital gain.
Every shareholder (probably) and everyone in Xbox division probably knows that Microsoft is in growth phase. And to grow you need to spend money. And since Microsoft is trying to grow from pretty bad position (Xbox One gen), it hurts financially even more. So it would not surprise me if Xbox division was around flat numbers right now (every dollar is pumped straight back).

But important thing for shareholders is that this aggressive spending will bring big money later. So they are willing to let it slide to profit at a later date. ie. Netflix and Spotify model.

Xbox has an advantage that it is part of 40 billion business per quarter. So, Xbox division is literally drop in the ocean. So even if Xbox division is not generating huge profits right now, nobody cares because Microsoft had 20 billion in PROFITS just last quarter. That's equivalent of SIE revenue for almost whole fiscal year. That's equivalent of almost 3 Bethesda's. And Microsoft is using that profit to grow Xbox, so Xbox can one day make same profits. Most important thing for shareholder is to know why things are happening - They don't care about being in red when CEO will come and say "we are in growth phase, so we need to spend money to increase MAU, so we can reap profits later"

Sony and Nintendo need to talk about profitability, because their gaming divisions are crucial parts of overall profitability for both companies.
 
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Bernd Lauert

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I disagree.

What if growth (not just for GP, but for any other service or division or company) is increasing, but content cost per subscriber is also growing exponentially, resulting in a wider gap b/w revenue and operating loss with each passing day? That kind of "growth" wouldn't be beneficial for anyone.

Ultimately it comes down to profitability, and that's what investors are mostly interested in. They don't care if the profit is being driven by one strategy or the other. In the end, what matters to them is that their investment is bearing fruits both in dividends and capital gain.
Luckily Microsoft is swimming in profits, so investors won't care much about the current profitability of Xbox. It's an entirely different dynamic compared to Nintendo and Sony.
 

DonkeyKong

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Definitely would have thought Series X>Series S as far as sales, especially since they're more in demand it seems.

Maybe more Series S are just being made?
Here in the UK it's pretty easy to get a Series S but the X is pretty much impossible at the moment, small numbers of X's trickle into stock now and then but they are snapped up instantly . Pretty frustrating.
 
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reksveks

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Will update my table to include the bigger revenue numbers of more personal computing and the whole Microsoft company, I am interested to see what percentage xbox is.
 
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Raekwon26

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I dont see why Xbox Series S/X cant crack 90m+ this gen.

Chip and part shortage will slow it down though.
Question Mark What GIF by Aminé
 

yurinka

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He forgot that part of these sales are XBO units, hardware sales aren't Series console sales only. Probably did the same for the previous quarters.

In addition to this, as I remember at least around launch both MS and Sony were shipping ~75% of the big SKU and ~25% of the smaller SKU.

So I wouldn't take this estimation seriously.
 
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onesvenus

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Ultimately it comes down to profitability, and that's what investors are mostly interested in. They don't care if the profit is being driven by one strategy or the other. In the end, what matters to them is that their investment is bearing fruits both in dividends and capital gain.
Investors are getting capital gain because the company as a whole is profitable. As you say, they don't care MS is spending money on Xbox because that's an investment to grow. If investors were not getting fruits another thing would happen. Luckily MS is not in that position.

It's only videogame fanboys who care about it as seen by no investor asking about it on the conference call.
 

Bernd Lauert

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He forgot that part of these sales are XBO units, hardware sales aren't Series console sales only. Probably did the same for the previous quarters.
XBO sales are currently likely less than 1% of the sales, if that. They are to be ignored.
 

yurinka

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No update on Gamepass numbers? hmmmm
Their 37% YoY growth shown for June meant that this summer they were around 18M, pretty much the same number they had in January of this same year. Even if it's a great YoY growth they didn't achieve their estimation.

So maybe same happened this quarter, probably didn't achieve their expectations so prefered to don't reveal the number.
 

Clear

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Seems like business at pretty much the usual level. They're going to need radical improvement to justify the greatly increased expenditure on the back-end.
 
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Chukhopops

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Their 37% YoY growth shown for June meant that this summer they were around 18M, pretty much the same number they had in January of this same year. Even if it's a great YoY growth they didn't achieve their estimation.

So maybe same happened this quarter, probably didn't achieve their expectations so prefered to don't reveal the number.
If you’re saying they had the same number of subs in Jan and Jun then that’s most likely wrong, 37% net sub increase means on average 450k new net subs per month and I doubt it was zero over a six month period.

My guess is they will refresh the sub number in January (one year after the last update).
 
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skit_data

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Interesting if the Series X vs. Series S split is true, if that’s the case they produced really few Series X and a ton of Series S. I was expecting numbers to be the opposite in relation to each other.
 
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Clear

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Any ideas on the increased expenditure? Does remind me to have a look at the more personal computing operating costs.

They have to be spending many times more than before (on a monthly basis) to fund all their newly acquired studios. And while they are readying product they still need to buy-in from external partners to maintain momentum on Gamepass.

As I've been saying for a long time now, you can't just look at GP subscriber counts to diagnose the overall health of their business, because the sunken cost of supplying content to it is not at all constant. Obviously at some point income needs to square with expenditure, and if there are 20+ studios constantly burning money its going to take a substantial increase in revenue to compensate.
 
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Riky

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Interesting that Spencer said they are not done adding to the portfolio so obviously they deem the cost of adding studios in those projections as a worthwhile investment, as well as hiring Crystal Dynamics.
They must be happy with the trajectory to plan to do this.
 

Godot25

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They have to be spending many times more than before (on a monthly basis) to fund all their newly acquired studios. And while they are readying product they still need to buy-in from external partners to maintain momentum on Gamepass.

As I've been saying for a long time now, you can't just look at GP subscriber counts to diagnose the overall health of their business, because the sunken cost of supplying content to it is not at all constant. Obviously at some point income needs to square with expenditure, and if there are 20+ studios constantly burning money its going to take a substantial increase in revenue to compensate.
And how many of those studios published a game on Xbox platform in last quarter? Double Fine with Psychonauts 2? Or you expecting Game Pass subs to skyrocket without AAA first-party games?

I mean, if there won't be big uptick in GP subs after Age IV, Halo Infinite and FH 5, then it is may be time for panick...
 

Arenafighter

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So they really stopped reporting Gamepass numbers?
Also only revenues are discussed but no profits for the gaming business?
Hardware sales are always hidden behind percentages and only if those are good.
It would be nice if Microsoft tried to be trasparent with this stuff.
And why??? It's totally uninteresting. MS takes another strategy as Sony. So I think MS is fine with it and we have have less Fanboy Bullshit😉
 
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reksveks

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They have to be spending many times more than before (on a monthly basis) to fund all their newly acquired studios.
Estimates? I probably need to do more research into the splits of that more personal computing division but it's going to be interesting to do.
 
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John Wick

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I don't think Minecraft has anything to do with Microsoft's strategy on high-end games. Grand/Fate was making Sony $1bn a year and it wasn't part of Playstation.

Microsoft lost the mobile war to Apple and Google and is now trying to come at the mobile with the cloud angle, but how many people are going to play high-end games on their phones? Microsoft obviously isn't hurting for money but watching Apple taking cuts from game dev and doing basically nothing while pulling billions in profit must not sit well with them.
Losing out to Google and Apple on the mobile OS hurt them even more. Windows Mobile's failure cost them hundreds of billions.
 
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reksveks

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I don't think Minecraft has anything to do with Microsoft's strategy on high-end games. Grand/Fate was making Sony $1bn a year and it wasn't part of Playstation.
Minecraft is to me the poster child/goal of MS total movement. To be an place where you can entice devs/creators to create UGC that you can sell within a marketplace. Flight Simulator has a similar set up.
 

FrankWza

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And why??? It's totally uninteresting. MS takes another strategy as Sony. So I think MS is fine with it and we have have less Fanboy Bullshit😉
Its the opposite. It would be less fanboy bullshit. There were so many gp numbers being “leaked” threads. I think someone even counted the dust particles on phils shelf and there were 30 million of them so…
 

MonarchJT

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There is also a digital only PS5 though & all consoles can download games so this information isn't telling you that the ratio is any different when it come to digital downloads.
unavailable and produced in limited quantities by Sony. They are using a model opposite to Ms which instead is pushing the XS to move with almost 100% confidence, gamepass
 

Clear

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And how many of those studios published a game on Xbox platform in last quarter? Double Fine with Psychonauts 2? Or you expecting Game Pass subs to skyrocket without AAA first-party games?

I mean, if there won't be big uptick in GP subs after Age IV, Halo Infinite and FH 5, then it is may be time for panick...

The problem for me is when I say stuff like this I feel like some folks (not necessarily you) will read it as covert cry of "doom!" for Xbox.

Its simply not that binary.

Here's the thing: They have an extensive roster of titles in development, no doubt all targeting different launch dates. That's a constant spend which in turn is intended to provide sustained mid-to-long-term uplift to the service and ecosystem. That's the fundamental underlying equation in my view.

The issue with this sort of deferred-return business plan is that its prone to interference based on forecasts made out from current conditions. In simple terms they look at how fast the car is going and make a determination of whether to step on the gas or not.

In this instance "speed" is their profit/loss ratio, and "stepping on the gas" is proactively changing the product release cadence and perhaps content in order to improve their performance. So for instance, more suggestions are made to add mtx, potentially edgy content get smoothed off, schedules get more firmly imposed etc.

Its a complicated thing because no doubt they'll be looking at growth across different segments (PC vs console GP), demographics, etc. In order to fine-tune their approach.

The bottom line is that things seem to be going OK for now, but just OK. Their competitive position hasn't changed greatly, but with this huge slate of ongoing first party product their costs have to have skyrocketed. I'm sure that MS can afford to keep buying studios, what I'm dubious about is the rationale that says this makes good sense business-wise when so much is yet to be proven.

I can well understand them wanting to give the impression that another huge purchase is just around the corner, because that's good for business. But that being said even with the embarrassment of riches they have already promised for the future, is it really showing up on the balance sheets right now?

There's a ceiling to everything, the only question is how when your business starts to bump against it.
 

NickFire

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I really thought it was possible that they were near 30 million subs after that interview, especially when they announced one of the old GTA's would be on GP. Seemed like a number they might have shared with Rockstar. But there's no way they wouldn't have reported something like that with this news. So I was wrong.
 

Thirty7ven

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I dont see why Xbox Series S/X cant crack 90m+ this gen.

Chip and part shortage will slow it down though.

Because you need to dominate a market and be a hit worldwide, like the 360 dominated the US and still put out numbers worldwide.

90 million seems like a really big stretch right now but things change, don’t see how it changes enough for it to happen though. For reference the 360 hit 85 million…. Do you actually expect Series to outsell it, given everything we know at this point in time?
 
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