In the third quarter of fiscal 2024, Microsoft Corp witnessed a remarkable surge in its gaming revenue, which soared by 51% year-over-year, reaching a staggering $5.45 billion. This substantial growth was largely fueled by the inclusion of two major acquisitions: Activision Blizzard and King, the owners of highly popular gaming franchises such as Call of Duty and Candy Crush Saga. These acquisitions played a pivotal role, contributing 55 percentage points to the overall growth in gaming revenue, as reported by IGN.
A significant portion of this growth was attributed to Xbox content and services revenue, which experienced an impressive increase of 62%. This surge was primarily driven by the addition of Activision Blizzard to Microsoft’s gaming portfolio. Excluding the impact of Activision Blizzard, the growth in Xbox content and services revenue would have been only 1%.
However, amidst the impressive growth in content and services revenue, Xbox hardware sales faced a notable decline, plummeting by 31% in the same quarter. This decline was particularly striking following a lackluster holiday season for Xbox hardware sales in the previous year. Microsoft acknowledged this downturn, citing a lower volume of consoles sold as the primary factor.
The financial impact of the Activision Blizzard acquisition was evident in Microsoft’s 10-Q report, where operating expenses surged by $1.3 billion, representing a substantial 41% year-over-year increase. The acquisition contributed 43 percentage points to this rise in operating expenses. Additionally, research and development expenses grew by $669 million, with 9 percentage points of this growth attributed to Activision Blizzard. Sales, marketing, and general administrative expenses also witnessed significant increases due to the acquisition.
During the earnings call, Xbox projected similar growth for the upcoming quarter, with gaming sales expected to increase in the low-to-mid 40s, primarily driven by Activision Blizzard’s contribution. However, Microsoft CFO Amy Hood forecasted continued declines in hardware sales year-over-year.
Despite the challenges in hardware sales, Microsoft’s overall gaming division is thriving, thanks to the strategic acquisitions of Activision Blizzard and King. These acquisitions have significantly bolstered Microsoft’s gaming portfolio, positioning the company for further growth and success in the gaming industry.
As a result of the positive gaming results, Microsoft’s shares experienced a 2.5% increase, reaching $409.30 at the time of publication on Friday, according to Benzinga Pro.