Microsoft (MSFT) is reportedly pushing for 30% profit margins at Xbox division
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 goal as “accountability margins.” Many of the recent layoffs and studio closures have been driven by this mandate. The 30% profit margin target, which was apparently 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 often 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. The company has also invested heavily in acquiring studios to bolster its intellectual property portfolio, spending more than $100 billion on acquisitions including Zenimax, Activision Blizzard, and smaller companies like Double Fine Productions.
However, Microsoft’s recent decision to increase the price of Game Pass has upset many loyal fans who now question the subscription’s value. This comes despite Xbox President Sarah Bond’s claims that the service was profitable last year. Industry analysts have also pointed out that including Call of Duty releases on Game Pass may have reduced overall revenue generated by the franchise, likely contributing to the recent price hike.
Microsoft (MSFT) is riding the current AI wave alongside many other tech giants, but it appears that Xbox is not delivering the returns to justify the company’s extensive investments over the past decade. While the 30% profit margin target is surprising, it sheds light on why Microsoft decided to shut down studios like Tango Gameworks, The Initiative, and Arkane Austin.
For comparison, Nintendo has forecasted an FY26 operating profit margin of just under 17% as it ramps up production of the Switch 2 console this year. Microsoft’s directive seems quite ambitious given that the company has not disclosed console unit sales or shared any specific game sales data in years—a stark contrast to Sony and Nintendo, both of which report these numbers quarterly.
It’s unusual for one of the largest companies on Earth to be so secretive with its gaming division’s performance, especially in such a competitive industry.
Do you think Microsoft will be able to achieve a 30% profit margin 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
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