Xbox Q2 hardware sales down 29% as Game Pass experiences record growth

Microsoft has released its financial results for the second quarter of its fiscal year, which saw its overall gaming revenue decrease by 7% while hardware sales were down 29%.

The numbers:

For the three months ended December 31, 2024:

Revenue: $69.6 billion (up 12% year-on-year) More Personal Computing (incl. Xbox) revenue: $14.7 billion Operating income: $31.7 billion (up 10% year-on-year) Net income: $24.1 billion (up 10% year-on-year)

The highlights:

Microsoft experienced a positive quarter overall, driven by its Cloud services which generated $40.9 billion (up 21% year-on-year). Its AI business also saw a major increase of 175% year-on-year, having surpassed an annual revenue rate of $13 billion.

While its gaming segment saw a decline in revenue, Xbox content and services rose 2% due to "stronger-than-expected performance" in Activision Blizzard content, including the launch of Call of Duty Black Ops 6.

In the earnings call, Microsoft CEO Satya Nadella shared that Xbox Game Pass set a new quarterly record for revenue, with its PC subscriber base growing by over 30%.

Nadella also revealed that 140 million hours were streamed on Xbox Cloud Gaming during the quarter.

He also noted that Indiana Jones and the Great Circle has been played by more than four million people since its launch on December 9, 2024.

Reflecting on the gaming segment, Nadella said Microsoft is delivering its plan of "improving the profitability of the business" by providing "higher margin content and platform services."

Looking ahead, Microsoft expects Xbox content and services revenue to increase in the "low to mid-single digits" for Q3, driven by first-party content and Xbox Game Pass. It expects hardware revenue to "decline year-on-year."