Record profits and revenue growth have fueled Microsoft’s share price over the past few years, but the folks in Redmond are apparently unhappy with the Xbox division.
The company has reportedly set a 30% profit margin goal for its gaming segment. Bloomberg’s Jason Schreier and Dina Bass reported today that Microsoft has labeled this new profitability goal as “accountability margins.” Many of the recent layoffs and studio closures have been driven by this mandate.
This 30% profit margin target, which was apparently set in 2023 by CFO Amy Hood, is well above the gaming industry average of 15-25%. It seems somewhat unrealistic, especially considering how often Microsoft’s recent gaming efforts have failed to generate sustainable growth.
In recent years, Microsoft has shifted its focus to cloud gaming and Xbox Game Pass subscriptions. However, it’s hard to ignore the over $100 billion the company has spent acquiring studios like Zenimax, Activision Blizzard, and smaller companies such as Double Fine Productions in an effort to beef up its IP portfolio.
The company recently increased the price of Game Pass, frustrating many loyal fans who no longer see value in continuing the subscription. This comes despite Xbox President Sarah Bond claiming that the service was profitable in the previous year. Industry analysts have pointed out that including Call of Duty releases on Game Pass decreased the overall revenue generated by the franchise, which likely contributed to the recent price increase.
Microsoft (MSFT) is riding the AI bubble like many of its tech sector peers, but it appears that Xbox is not pulling its weight to justify the significant costs and investments made over the past decade.
While today’s news about the high 30% profit margin target is surprising, it helps explain why the company decided to shut down studios like Tango Gameworks, The Initiative, and Arkane Austin.
For comparison, Nintendo has forecasted its FY26 operating profit margin to come in just under 17% as it ramps up production of the Switch 2 console this year. Microsoft’s directive seems outlandish, especially since the company has not disclosed console unit sales or even mentioned a single game’s sales data in years. This is quite odd for one of the largest companies on Earth, considering that both Sony and Nintendo report those numbers on a quarterly basis.
Do you think Microsoft will be able to achieve a 30% profit margin at the Xbox division? Or is this just an excuse for shutting down studios, canceling games, and porting Xbox titles to competitor platforms?
Let us know your thoughts in the Shacknews Chatty comment thread below.
https://www.shacknews.com/article/146488/xbox-profit-margin-mandate-msft
