It wasn’t a surprise: In the third fiscal quarter, Microsoft’s gaming division achieved a substantial revenue boost, albeit at a steep cost of $68 billion.
Microsoft has reported a significant increase in gaming revenue compared to the previous year, as highlighted in the company’s latest quarterly report. However, the substantial boost has been driven by the costly acquisition of Activision Blizzard.
Despite the record-breaking revenue figures, they mask a negative trend that would have been apparent had it not been for the Activision Blizzard acquisition.
Record Growth with Acquisition at the Core
Over the course of the third quarter of fiscal year 2024, Microsoft reported a 51% increase in gaming revenue, amounting to an additional $1.8 billion, bringing the total to $5.45 billion. This record-setting quarter for the gaming division was primarily boosted by the acquisition of Activision Blizzard and its mobile division, King.
55 percentage points of the net effect are attributable to the acquisition of the company behind “Call of Duty.” Consequently, the revenue from gaming products not associated with Activision Blizzard and King actually saw a decline over the previous year.
The acquisition also significantly impacted the revenue from Xbox content and services, which surged by 62% compared to the previous year, with 61% of that increase stemming from Activision Blizzard King’s revenues. Without this effect, Xbox contents and services would have seen only a minimal increase.
The situation is somewhat different in terms of hardware sales, which were less affected by the acquisition. Prospects of exclusive games and the inclusion of Activision Blizzard titles in the Xbox Game Pass may have influenced some consumers towards purchasing an Xbox console. However, the hardware revenue figures were disappointing, decreasing by 31% due to lower console sales. As usual, Microsoft did not disclose specific sales numbers.
Has the Activision Blizzard Purchase Paid Off?
Whether the acquisition of Activision Blizzard and King will prove to be a profitable venture for Microsoft remains to be seen in the years to come. Revenue is just one of several indicators and does not reflect profitability. Profit margins and potential synergies are also critical factors to consider.
Following the acquisition, not only did revenue increase, but expenses within the gaming division also rose significantly.
Operating costs in the More Personal Computing division, which includes gaming, increased by $1.3 billion or 41% compared to the previous year, a direct result of the acquisition. Research and development expenses rose by $669 million, an increase of ten percent, with Activision Blizzard being a major contributor.
Additionally, sales, marketing, general, and administrative expenses have all significantly increased due to the acquisition. It’s also worth noting that Activision Blizzard itself generated $1.97 billion in revenue in the third quarter. However, the total costs for integration, transactions, and other revenue-related expenses amounted to $980 million.
Combined with other operating expenses totaling $1.34 billion, Activision Blizzard recorded a total loss of $350 million. At least in the short term, the acquisition continues to result in financial losses.
