Xbox FY23 Q1 gaming revenue up 4% thanks to hardware, offset by reduced content engagement

What you need to know

• Microsoft has revealed its earnings report for the first quarter of fiscal year 2023, which ended Sept. 30, 2022.
• The earnings report reveals that the Xbox division saw a 4% uptick in revenue over the same period last fiscal year.
• This increase was driven by a 13% increase in revenue from hardware sales, such as consoles.
• The gains were offset by a 3% decline in content and services revenue, partially from a lack of first-party content.

Microsoft has detailed its earnings report for FY2023 Q1, the beginning of a new fiscal year that ended Sept. 30, 2022. The earnings report shows increased revenue for Microsoft as a whole, with Xbox also seeing a small increase over the numbers reported during the same period last year.

According to Microsoft (opens in new tab), the Xbox division reported a 4% increase in overall revenue, up to $3.61 billion. This is driven primarily by a solid 13% increase in revenue from Xbox hardware, such as the sales of Xbox Series X and S consoles, accessories, and more.

This increase returns Xbox to the upward trends of previous quarters, after FY22 Q4 saw a small decline in overall revenue from the gaming division at Microsoft. Xbox hardware sales appear to be doing well, with supply more able to keep up with demand in comparison to the previous quarter. However, Xbox also reported a 3% decline in revenue from content and services.

Xbox indicates this decline is due to a decrease in first and third-party content, referencing the lack of high-profile Xbox Game Studios launches outside of titles like Grounded and the upcoming Pentiment. While there are still many excellent Xbox titles to play, many of the most anticipated first and third-party Xbox games aren’t releasing until 2023 and beyond.

Xbox reported that the decline in content and services revenue was partially offset by continued growth in Xbox Game Pass subscriptions, although specific numbers aren’t mentioned. PC Game Pass appears to be growing at a significant rate, with Microsoft CEO Satya Nadella reporting a 159% increase year-over-year for the PC-centric gaming subscription.

The next 12 months could see major gains in these areas, as Xbox has a slate of upcoming first-party games releasing throughout 2023 such as Minecraft Legends, Forza Motorsport (2023), Starfield, and Redfall. The pending acquisition of Activision Blizzard would also see Microsoft gain a huge number of games and IPs for the Xbox division and Xbox Game Pass, and is expected to close before June 30, 2023.

Beyond gaming, Microsoft reported an overall revenue of $50.1 billion, narrowly beating expectations. Microsoft’s revenue was driven by steady increases in Windows commercial products such as Microsoft 365, and search and advertising revenue through Bing. On the other hand, Windows OEM revenue fell by a staggering 15%, indicating a sizeable decline in the demand for third-party Windows laptops and devices.