Microsoft CEO Satya Nadella rarely says much about Xbox on the quarterly earnings calls he oversees for the company. Investors almost never ask questions about Xbox. It’s almost a footnote in these discussions, which are becoming increasingly focused on successes in artificial intelligence, a thing that makes Microsoft loads of money.
When he does talk about Xbox, Nadella is almost always positive. There’s usually a little segment, a sentence or two, maybe touting a major new release or a Game Pass number milestone, where he reminds everyone that it exists and is doing well in some metric or another. Which is why his tone on today’s earnings call during the blink-and-you-miss-it Xbox mention was rather surprising.
Nadella’s statement today was vague and hopeful, but about as down as I’ve ever heard him be about gaming. He indirectly referenced the recent devastation: lay-offs impacting 1600, expectation to lay off 1600 more, and separation from four (maybe five) of its owned studios. Nadella referred to this as “necessary decisions…to reset the business for long-term growth,” which is essentially the same as what Asha Sharma has been saying.
“When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth,” he said. “We have the best IP in the industry and talented studios around the world, and believe we can bring these strengths together, and expect to return the business to growth in fiscal 2027.”
That was Nadella’s statement in full, with no specifics offered on what “return to growth” means. The one metric that’s been shared with us, that the division is operating at a 3% profit-margin, suggests profitability, but profitability is not the same as growth and evidence suggests Xbox has been on the decline for a while now.
Contrast this with what Nadella said of Xbox last year in a surprisingly lengthy statement for him on the division that touted multiple successes and did not indicate that anything was wrong at all:
“When it comes to gaming, we have 500 million monthly active users across platforms and devices. And we are now the top publisher on both Xbox and PlayStation this quarter, with the successful launches of Forza Horizon 5 and Oblivion Remastered. The Call of Duty franchise has never been stronger: 50 million people have played Black Ops 6. Total hours surpassed 2 billion. Minecraft saw record monthly active usage and revenue this quarter, thanks in large part to the success of the Minecraft movie. And we have nearly 40 games in development, so much, much more to come. We surpassed over 500 million hours of game play streamed via the cloud this year. And Game Pass annual revenue was nearly $5 billion for the first time.”
Microsoft overall reported “a record fiscal year” with revenue surpassing $331 billion, but also underwent major cuts company-wide this month anyway.