Microsoft Expects Xbox One X To Improve Revenue: “Significant Impact” On Gross Margins

Amy Hood, Microsoft, News, Originals, PC, Platforms, Satya Nadella, Xbox One

During Microsoft’s quarterly financial conference call for investor and analysts related to the period between July 1st and and September 30th, Chief Financial Officer Amy Hood talked about the outlook for the Xbox business, and in particular the launch of Xbox One X.

First of all, Hood explained that new services like Mixer and Xbox Game Pass have shown “promising early results.”

Afterwards, she mentioned that the company expects revenue growth in the current quarter from the launch of Xbox One X, and “continued healthy growth” for software and services revenue. According to Hood, “the higher mix of gaming and hardware revenue” during the quarter will “significantly impact both the segment and the company’s gross margin percentages.”

After that, Chief Executive Officer Satya Nadella explained that one of the biggest changes happened in the last couple of years in the gaming business is the “vibrancy of the Xbox Live network” across PC, console and now increasingly on mobile thanks to Minecraft. According to Nadella, once you have the network, you have a range of different opportunities like subscription offers like Game Pass that is “off to a very good start.” He mentioned that the goal is to essentially have a “Netflix for games,” with a gaming subscription that users can enjoy across all of their devices.

Streaming is also another opportunity, and Microsoft feels “very good” about the engagement increases in the “very unique” value proposition of Mixer. Nadella explained that the 20% growth in software and services revenue reported in the past quarter is a “leading indicator” of where Microsoft thinks the opportunities lie.

Hood added that the company is already seeing the gaming’s impact on the gross margins, with “material improvement” in the segment during the past quarter. A lot of that is essentially due to the higher margins that Microsoft has structurally in the software and services revenue from the Xbox business. She believes that as the industry “pivots” to be more about engagement and monetization of the member network, we can expect the margin profile to evolve from Microsoft’s more traditional hardware-focused Xbox to become a “real combination” of those two factors. Structurally, that would have higher operating margins.

If you want to learn more about Microsoft’s financial performance during the latest fiscal quarter, you can enjoy our dedicated article.

Today Nadella also explained that Microsoft has high expectations for its gaming business, and is “fundamentally rethinking” how they’re measuring growth in the segment.

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