Activision pushed Xbox to growth in an otherwise flat Q3

Microsoft’s Q3 2024 results (fiscal Q1 2025) continue to reflect Xbox’s shifting strategy:

• Xbox’s gaming revenue grew 43% year-on-year, but essentially all of this growth came from the Activision Blizzard acquisition (43 points of net impact)
• Xbox content and service revenue grew 61%, with 53 revenue points of net impact from the acquisition
• Xbox’s hardware sales fell 29%, continuing a trend from previous quarters
• Black Ops 6 has performed well so far, setting records for day one players, new Game Pass subscribers on a launch day, and increased unit sales off-platform

Xbox’s Activision Blizzard acquisition is doing its job

Let’s address the elephant in the room: In terms of overall gaming revenue for the quarter, Microsoft’s growth would have been flat if not for the Activision Blizzard acquisition.

Added revenues from the following Activision content helped Xbox easily leapfrog its Q3 2023 revenues:

• Recurring mobile revenues from Candy Crush games, which boast 200 million monthly active users, and Call of Duty Mobile
• Ongoing subscription and in-game revenues from World of Warcraft, which remains a top MMORPG globally and launched its well-received expansion The War Within in Q3
• Ongoing live-service PC and console revenues from Warzone: Warzone continues to be a top free-to-play battle royale game on PC/console

The acquisition has helped Xbox’s revenues continue to grow despite a difficult time for the brand in terms of first-party big content releases – and across non-Xbox screens and platforms.

It is worth noting that Q3 2024 has been quiet compared to the same period in 2023, when Starfield launched.

In general, PlayStation has continued to grow its revenues and mindshare more organically. Unlike PlayStation, however, Xbox is focusing more heavily on its subscription and off-platform strategy. 

To that end, Xbox’s content and service revenue’s 61% growth shows that the strategy is producing results. Roughly 8 points of growth came from non-Activision content and services, so Xbox would have enjoyed gains here even if Microsoft had not acquired Activision.

Still, Activision again accounted for the bulk of this growth. Microsoft added Activision’s Modern Warfare 3 and Crash Bandicoot N. Sane Trilogy to Game Pass in Q3.

Subscribers could also access the Black Ops 6 beta via a subscription (versus having to preorder the game on other platforms), also having an impact. 

The first Call of Duty under Xbox is having a promising start

Black Ops 6, the first mainline Call of Duty launch since Microsoft bought Activision, launched on 25 October.

While this fell out of the scope of the Q3 earnings, Microsoft’s CEO and Activision have released some key stats. Black Ops 6’s launch enjoyed:

• The most day-one Call of Duty players – as well as the highest number of total players, hours played, and total matches on the launch weekend
• The most new Game Pass subscribers in one day, overtaking Starfield’s record from a year prior
• 60% more launch unit sales on PlayStation and Steam – strengthening Xbox’s off-platform push and offsetting Game Pass' premium revenue cannibalisation 

One thing to keep in mind: Last year’s Modern Warfare 3 underperformed, and we’re comparing to that. Still, Xbox is bolstering subscriber numbers on its service, building network effects for one of its biggest IP (Call of Duty), and extracting more revenues from off-Xbox platforms – all key pillars of its strategy.

However, Game Pass subscribers have not been growing as quickly as Xbox had originally hoped. It will be interesting to keep an eye on how Black Ops 6 and Microsoft more broadly can secure long-term retention of these new subscribers.

Reflecting on Black Ops 6’s promising start, Microsoft CEO Satya Nadella said, ‘’This speaks to our strategy of meeting gamers where they are by enabling them to play more games across the screens they spent their time on.’’

The attention economy is oversaturated, so Xbox is spreading itself far and wide to maximise its share.

Beyond the pure engagement numbers,  Black Ops 6 has also been impressing critics and fans alike. It is seen as a return to form for the franchise.

Black Ops 6 currently sits at 84 on Metacritic, the highest-scoring mainline Call of Duty game since the original Black Ops almost 15 years ago. The game has a user score of 7.6 too, the first positive user score since the Xbox 360 generation.

Call of Duty just had its strongest and best-received launch in generations, which is well-timed, all while helping Xbox hit key growth metrics.

What’s next for Xbox and why its hardware decline is not a death knell

Xbox’s vision to reach 3 billion gamers reflects a strategic pivot away from relying solely on consoles, a platform that cannot meet that scale alone.

Having lost ground in the console wars during the Xbox One era, Xbox has redefined itself as a services-driven brand rather than hardware-centric, investing heavily in cloud, PC, mobile (via a dedicated store), and service operations alongside its consoles.

Hardware is not a core pillar of Xbox’s long-term strategy, but grand next-generation hardware plans and rumours like a handheld Xbox show that hardware will remain important (for now).

Therefore, Xbox’s hardware sales falling 29% is no cause for concern –  as long as Xbox continues to grow its gaming, content, and services revenue and continues to diversify.

To succeed, Xbox must balance this shift with the expectations of its loyal console fans, avoiding alienation during the expansion into PC, mobile, and even competing platforms like PlayStation and Switch. This is no small task, but it is necessary for the healthy growth of Microsoft’s games vertical. 

Meanwhile, the Activision acquisition has certainly helped Xbox keep shareholders in check as it continues to diversify. 

In the end, Xbox finally has a pipeline of powerful content under its belt across a plethora of platforms, but its future hinges on how it adapts to distributing this content.