Doubts are creeping into some investors’ minds about the extent to which Microsoft (MSFT) will generate enough return on investment from its splurge on gaming studios, despite hailing the recent release of Call of Duty: Black Ops 6 as its “biggest ever.”
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After spending $7 billion on Bethesda Studios and $75.4 billion on the giant Activision Blizzard purchase, some think the revenue growth is not as strong as should be, The Information reports.
The decision to buy these studios saved Xbox – CEO Satya Nadella was apparently close to choosing to withdraw from gaming; but instead chose to make bold acquisitions to grow its fledgling Game Pass subscription service.
However, subscriber growth has not been as strong as hoped and gaming revenues outside of the acquisitions have stalled.
At 5.8% in the year to June, revenue growth from the gaming division was well short of the 11% target. And in the quarter ended September, organic growth proved almost elusive, says The Information.
And Game Pass subscriber numbers are only around a third of the way to the firm’s target of 100 million by 2030.
Denny Fish, a portfolio manager at Janus Henderson Investors, told the publication that the Activision deal had been a disappointment. Another portfolio manager whose fund owns MSFT said gamers just don’t want a game pass such as the one on offer.
Gaming Now Bigger Than Windows for MSFT
Nevertheless, a year ago MSFT reported that the addition of Activision had seen its gaming division overtake Windows in terms of revenues during its 2024 Fiscal second quarter
Xbox content and services revenue, which includes Xbox Game Pass, was up by 61%, with the net impact from the Activision Blizzard acquisition at just over $2 billion in revenue.
And at the end of October, the company hailed more progress on gaming growth. Reporting its 2025 Fiscal Q1 numbers, MSFT said Xbox content and services revenue grew 61% year over year, driven by “53 points of net impact from the Activision acquisition,” according to the company’s earnings release. This came even as hardware revenues again declined, down 29%.
During the quarter, the software giant introduced its new Xbox Game Pass “Standard” tier and raised prices on its Xbox Game Pass Ultimate. Fiscal Q1 also witnessed the arrival of Call of Duty: Modern Warfare III on Xbox Game Pass.
The next progress report on gaming revenues is due soon with MSFT set to publish Fiscal year 2025 second-quarter financial results after the close of the market on Wednesday, January 29th. This will for the first time include the impact of Call of Duty: Black Ops 6, which Nadella said was the “biggest Call of Duty release ever.”
Is MSFT Stock a Buy?
MSFT has a consensus Strong Buy rating among 28 Wall Street analysts. That rating is based on 26 Buy and two Hold recommendations issued in the last three months. The average price target on MSFT stock of $506.96 implies almost 22% upside from current levels.
