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 target as “accountability margins.” Many of the recent layoffs and studio closures have been driven by this mandate.
The 30% profit margin watermark, which was apparently set in 2023 by CFO Amy Hood, is well above the gaming industry average of 15-25%. This goal seems somewhat unrealistic, especially considering how frequently Microsoft’s recent gaming efforts have struggled to generate sustainable growth.
While Microsoft has shifted focus to cloud gaming and Xbox Game Pass subscriptions in recent years, it’s hard to ignore the over $100 billion the company has spent acquiring studios like Zenimax, Activision Blizzard, and even smaller companies such as Double Fine Productions to bolster its IP portfolio.
The company recently increased the price of Game Pass, which upset many loyal fans who no longer see the value in continuing their subscriptions. This came despite Xbox President Sarah Bond claiming that the service was profitable in the previous year.
Industry analysts have noted that the inclusion of 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 costs and investments made over the past decade.
While today’s news about the high 30% profit margin target is a bit surprising, it does shed light on 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, therefore, seems somewhat outlandish given that the company has not disclosed console unit sales or shared any specific game sales data in years.
This reluctance to be transparent is quite odd for one of the largest companies on Earth, especially when both Sony and Nintendo report those numbers on a quarterly basis.
Do you think Microsoft will be able to achieve 30% profit margins 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
