Xbox faces 'challenging' revenue and profit targets following $70 billion Activision buyout

Following the largest acquisition in the history of the tech industry, Microsoft's corporate leaders have lofty expectations for Xbox's earnings performance.

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In 2023, Microsoft acquired games powerhouse Activision Blizzard King for $70 billion, adding thousands of employees and 8x new billion-dollar IPs to the Xbox brand. This buyout was a major win for Xbox, adding tons of long-term value through mega-hit games like Call of Duty, World of Warcraft, and Candy Crush. The acquisition also came with lots of responsibility for the games division at a time when Xbox was already being pressured to grow in an industry that appeared to be doing anything but.

That pressure has weighed on Xbox as Microsoft's board of directors and top C-suite executives scrutinize quarterly results even more than they had before. So far, the results have been impressive; Xbox may not be growing significantly on its own without Activision, but with Activision, Xbox delivered a record-breaking $21.52 billion revenue in FY24. It's unknown whether or not Xbox is meeting Microsoft's internal projections, but new reports indicate that these metrics are difficult to achieve.

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Sources close to Xbox have told Bloomberg that these revenue and profit targets are challenging. We know revenues, but profits remain a mystery. The closest figures we've been able to extrapolate relate to Xbox's accountability margin, which may be some measure of internal profits...albeit defined in a potentially different way than, say, operating profits.

Microsoft only reports profits of its individual business units. Xbox belongs to a business unit called More Personal Computing, and as such, profits from the games division are never discussed in quarterly and yearly briefings.

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Xbox gaming CEO Phil Spencer had recently said that Xbox's return on investment expectations are high:

"And we run a business. It's definitely true that inside of Microsoft, the bar is high for us in terms of the delivery that we have to give back to the company. We get a level of support from the company that's just amazing, in what we're able to go do," Spencer said at Gamescom 2024.