In a significant shift in Microsoft’s business landscape, gaming has now surpassed Windows in terms of revenue, which is a historic moment for the technology giant.
Microsoft reported this massive milestone in its quarterly financial results for the second quarter of the 2024 fiscal year, revealing that its video-game business, including the newly acquired Activision Blizzard, has brought in more revenue than its Windows division for the first time.
For the quarter ending December, Microsoft’s gaming revenue surged by 50% to reach $7.1 billion. But it comes with a caveat. This increase includes more than $2 billion in revenue from Activision Blizzard, a game publisher that Microsoft acquired for $69 billion. The inclusion of Activision Blizzard’s financial results marks the first time these figures have been incorporated into Microsoft’s earnings.
Gaming is now Microsoft's third largest business, bigger than Windows. Microsoft made $62 billion in Q2 2024 (fiscal). Gaming contributed $7.11 billion, more than the $5.26 billion from Windows https://t.co/VaV6MxQoag https://t.co/zilgpMRZju pic.twitter.com/0L302dmPDa
— Tom Warren (@tomwarren) January 30, 2024
In contrast, Windows revenue saw a 9.5% rise, totaling $5.3 billion for the same period. This growth, driven in part by an 11% increase in sales of Windows PCs, was not sufficient to keep pace with the significant boost in gaming revenue, particularly from the Activision acquisition.
Despite this, it’s important to note that Windows still holds a profit advantage over gaming. For example, Activision is only contributing $2.08 billion in revenue, which translates to a modest $11 million profit after accounting for transition costs. These dynamics are part of the reason behind the recent job cuts in Microsoft’s gaming division.
Microsoft’s overall revenue for the quarter was a staggering $62 billion, with a net income of $21.9 billion. Gaming has now become the trillion-dollar company’s third-largest business, trailing behind Office and cloud services. Microsoft’s gaming performance was also bolstered by a significant 61% increase in Xbox content and services revenue, which includes Xbox Game Pass.
Despite the impressive growth in gaming revenue, Microsoft is still focusing on other key areas. CEO Satya Nadella is looking forward to integrating AI into the Windows business, foreseeing AI as a major component of PCs in 2024.
The absorption of Activision Blizzard’s earnings has indeed helped elevate Microsoft’s gaming division to new heights. However, it’s crucial to recognize that this development is part of a broader trend of expansion and diversification within Microsoft.
While gaming has overtaken Windows in terms of annual revenue, the company continues to see marked growth across various business segments, including Office and cloud services, which still contribute the largest portion of Microsoft’s overall revenue.
Now, the real test remains for Microsoft as it seeks to make sure that its most recent billion-dollar acquisitions pan out.
Microsoft recently made headlines for purging thousands of employees from its gaming divisions, specifically Activision Blizzard. This has fans doubting Microsoft’s plans for Call of Duty, an annual franchise that takes considerable resources to maintain.
