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 that Microsoft has labeled this new profitability goal as “accountability margins,” and many of the recent layoffs and studio closures have been driven by this mandate. The 30% profit margin target, set in 2023 by CFO Amy Hood, is well above the gaming industry average of 15-25%. This ambitious goal seems somewhat unrealistic, especially considering how frequently Microsoft’s recent gaming efforts have struggled to generate sustainable growth.
In recent years, Microsoft has shifted its focus toward cloud gaming and Xbox Game Pass subscriptions. Despite these efforts, the company has spent over $100 billion acquiring studios such as Zenimax, Activision Blizzard, and smaller companies like Double Fine Productions, aiming to strengthen its intellectual property portfolio.
However, recent decisions have not sat well with Xbox fans. The company recently increased the price of Game Pass, which has upset many loyal subscribers who no longer see the value in continuing their membership. This price hike came despite Xbox President Sarah Bond stating that the service was profitable in the previous year.
Industry analysts have pointed out that including Call of Duty releases on Game Pass actually decreased the overall revenue generated by the franchise, likely contributing to the recent price increase. Meanwhile, Microsoft (MSFT) is riding the AI bubble like many other tech sector peers, and it appears the Xbox division is not pulling its weight to justify the massive costs and investments made over the past decade.
While today’s news about the high 30% profit margin target may be surprising, it sheds light on why Microsoft decided to shut down studios like Tango Gameworks, The Initiative, and Arkane Austin. By comparison, Nintendo has forecasted its FY26 operating profit margin to be just under 17% as it ramps up production of the Switch 2 console this year. Microsoft’s directive therefore seems somewhat outlandish, especially since the company has not disclosed console unit sales or even mentioned a single game’s sales data in years.
It’s quite odd for one of the largest companies on Earth to be so reluctant to share detailed results when both Sony and Nintendo regularly report those numbers on a quarterly basis.
Do you think Microsoft will be able to achieve 30% profit margins in its 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
