Xbox may not have grown as fast as Microsoft hoped it would, but the business is indeed a profitable and evolving segment within the tech giant.
Over the past few years, Xbox's profitability has come into question. Just how profitable is it to release first-party games onto Xbox Game Pass? How much does cannibalization eat into potential game sales? Xbox is the only member of the big 3 that does not publish profits, which is because gaming is not its own segment--Xbox is part of the Microsoft's More Personal Computing segment, which also includes Windows so it's almost impossible to separate out Xbox profits.
The FTC v Microsoft federal trial also highlighted Xbox's shortcomings when it comes to growth. It's true that Xbox has missed Xbox Game Pass subscriber targets (missed by 44% in 2022) and overall gaming revenue targets (missed by $780 million in 2023), but the games division is still profitable. And, according to Phil Spencer, Xbox is also growing.
"We're a business. I've said over and over. I don't get any luxury of not having to run a profitable growing business inside of Microsoft. And we are that today," Xbox gaming CEO Phil Spencer said in a recent interview with Polygon.
Catalysts for this growth are a mix of Xbox's total business, but also some big changes like bringing select first-party games to PlayStation and Nintendo in a bid to sell more games. The Activision Blizzard King acquisition also helps, and ATVI has already contributed over $2 billion to Xbox's quarterly holiday revenue.
This isn't the first time Phil Spencer has discussed Xbox profitability. Which, to be fair, may not really need to be discussed by virtue of the fact that Xbox is still around. Microsoft probably wouldn't keep an unprofitable albatross on its books. The real question is how profitable Xbox is, especially with PlayStation currently reporting 6% operating profit margins.
In 2022, during a Wall Street Journal Live event, Phil Spencer said Game Pass was profitable.
He also gave out specific figures that let us calculate Game Pass revenues. In 2021, Game Pass made between $1.258 billion - $1.887 billion, and in 2022, it could have made between $1.87 billion - $1.88 billion.
In 2023, Spencer reiterated Xbox's profitability during a Giant Bomb at Nite interview.
"Game Pass is profitable, Xbox is profitable. I've said it's sustainable, but people ask me what I mean by that," Spencer said in June 2023.
