Microsoft's first fiscal quarter results for 2020 show that while the company's services are going strong, slowing Xbox hardware sales are dragging overall gaming revenue down.
The earnings release reports a 7% decrease in revenue (down $196 million USD) for Microsoft's gaming division, driven by a 34% decrease in sales of Xbox hardware. In the first quarter of 2019, Xbox hardware sales shot up 94% thanks to the release of the Xbox One X.
Now, with Holiday 2020 just over a year away, consumers are looking to the launch of Project Scarlett and Microsoft is touting the strength of its gaming services and content. Year over year, services and content have remained steady on revenue. Industry analyst Daniel Ahmad characterized keeping service revenue flat as "fairly impressive"—Microsoft saw an increase in game sales and subscriptions for Xbox Game Pass and Xbox Live during a period that's seen global digital game spending take a dip, even for a juggernaut like Fortnite.
Along with Microsoft's increased focus on services and shift away from emphasis on hardware sales, the company is reporting on the gaming division differently than it has before. Staring with this earnings release, Microsoft isn't disclosing monthly active users for Xbox Live, opting instead to report all its service and software revenue wrapped together.
This change in approach extends to how Microsoft highlights the success of individual products as well. In its product listings for 2020's first quarter, Microsoft once again points to Gears 5 handily outperforming Gears of War 4, which glosses over the fact that Gears 5 is being judged by different metrics since it also launched on Xbox Game Pass.
Overall, Microsoft's revenue for the quarter was $33.1 billion, a year over year increase of 14% driven mostly by continuing growth in the Azure cloud computing service.
Assuming Microsoft doesn't push up the release of Project Scarlett, next year's first fiscal quarter results for 2021 will be the company's last before the release of both its new hardware and Sony's PlayStation 5.