Even as Xbox console revenues drop, Xbox LIVE users and Game Pass subscribers are at an all-time new high. Microsoft doesn't need to sell consoles to make billions.
Today Microsoft fully illustrated its core strengths and service-based focus. The company's recent Q2'20 financials show a substantially well-rounded business that can weather losses thanks to strong recurring service revenues. In the holiday 2019 quarter, Xbox earned $3.3 billion, down 21% year-over-year, and hardware sales are down 42% as gamers anticipate the Xbox Series X. But tremendous surges in Xbox Game Pass subscribers help offset these dips.
Microsoft's Satya Nadella confirmed Game Pass subscribers are at a record high, and actually doubled from last year's holiday quarter.
"We set a new record for Xbox Live monthly active users again this quarter, led by strength off-console. Xbox Game Pass subscribers more than doubled this quarter. And the Xbox Series X - announced last month - will be our most powerful console ever," Nadella said in the Q2'20 investors earnings call.
This is notable on many levels.
The mention of off-console strength is quite interesting and proves Microsoft's multi-platform service plan is working quite well. It shows how Xbox LIVE and services like Game Pass are making serious waves on PC, likely fueled by Halo: Reach's PC launch in December. Game Pass is also transformative because it actually increases full game sales instead of competing with them, which is one of the most powerful mechanisms in the games industry right now.
Of course we didn't get any numbers--Microsoft is notably coy about providing hard figures these days--but we can make an educated guess.
Last year in 2018's holiday quarter, Microsoft had 64 million monthly active Xbox LIVE users. During that same period, Nadella confirmed Game Pass subscribers were at a record high. So holiday 2019's XBL users exceeded 64 million, and essentially these numbers just keep on growing to help steady the core Xbox brand as console sales drop in prep for next-gen.
Now make no mistake, Microsoft's total Xbox earnings did drop nearly $1 billion year-over-year (the 21% YoY drop equates to roughly $905 million). This is due to many factors including Red Dead Redemption 2's massive sales spike in holiday 2018 and the lack of a comparative heavy-hitting game for holiday 2019. It's also because gamers are holding out on buying new Xbox console hardware until the Xbox Series X drops.
But even still, Xbox managed to make over $3 billion in quarterly revenues driven by strong digital engagement, services adoption, and game sales growth. These things are what Microsoft cares about most, and Project xCloud's release will help accelerate--and unify--all of these moving parts even further for sustained revenues over time.
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