Microsoft announces Q1 2025 earnings result: Activision bet pays off as Xbox hardware sales decline

Microsoft has announced its Q1 2025 earnings result. The biggest highlight in the tech giant’s report was a significant increase in gaming revenue, driven by strong growth in Xbox content and services. However, the company noted that its Xbox hardware revenue continues to decline. The latest earnings report shows a 61% year-over-year increase in Xbox content and services revenue which the company largely attributed to the acquisition of Activision Blizzard. Meanwhile, Microsoft also reported a 29% decline in Xbox hardware revenue. The company’s strategy of making its games available on multiple platforms, including PC and cloud gaming, may have contributed to the decline in its hardware sales. Apart from this, Microsoft also reported an increase in AI cloud services, OEM and device revenue.

What helped Microsoft to increase its gaming revenue

Microsoft's Q1 2025 gaming revenue growth was driven by the introduction of the new Xbox Game Pass "Standard" tier, an increase in the price for the Game Pass Ultimate subscription and the addition of Call of Duty: Modern Warfare III to the Game Pass library.

However, this quarter's figures do not include the impact of Call of Duty: Black Ops 6, which launched last week. Microsoft CEO Satya Nadella also claimed it to be the “biggest Call of Duty release ever”.

How other divisions of Microsoft contributed

The company's Intelligent Cloud division saw a 20% year-over-year revenue increase, reaching $24.1 billion, fueled by Azure and its AI services.

Productivity and Business Processes, which include Office products, also experienced a 12% revenue growth. While overall OEM and Devices revenue increased slightly (2%), this was primarily due to Windows OEM, offsetting a decline in device sales.

Microsoft continues to invest heavily in AI, particularly in its Copilot platform, recognising the potential of AI across various industries. The company's AI business is expected to cross a $10 billion annual run rate this quarter.

Despite facing challenges like the recent CrowdStrike outage that caused widespread disruptions, Microsoft also remains focused on security and innovation.