All purpose Sales and Sales Rumours and Anecdotes [2024 edition]

[Shifty Geezer]

what if the same 68B dollars was driven into marketing, TV shows, and building titles, and they moved up to 50% more revenue? Should we discount it because they spent 68B to drive it?

The fundamental difference here is without investing those billions in new content, that content wouldn't exist and be generating revenue. Whereas ABK was already generating huge revenue so buying it automatically adds huge revenue to the division.

All the other factors you talk about are fine - they are the ebb and flow of revenue and comparable year on year. A 5% increase from a TV series is a comparable 5% increase to any other move any other year.

Any shareholder would want the purchase; it generates guaranteed revenue likely for decades to come. Going on an expansion and marketing blitz doesn’t.

Sure, and this is possibly great news for shareholders. For us trying to follow how the different console businesses are doing though, it's not insightful. We can't really tell what's going on with the Gaming Division and its services and hardware operations. Did MS grow the (non ABK) gaming division 20% YOY, hidden under the ABK influx? Or did it shrink 20%, hidden by the same? How are we supposed to look at these financials and relate them to previous to understand the XB business?

 

[iroboto]

The fundamental difference here is without investing those billions in new content, that content wouldn't exist and be generating revenue. Whereas ABK was already generating huge revenue so buying it automatically adds huge revenue to the division.

All the other factors you talk about are fine - they are the ebb and flow of revenue and comparable year on year. A 5% increase from a TV series is a comparable 5% increase to any other move any other year.

Sure, and this is possibly great news for shareholders. For us trying to follow how the different console businesses are doing though, it's not insightful. We can't really tell what's going on with the Gaming Division and its services and hardware operations. Did MS grow the (non ABK) gaming division 20% YOY, hidden under the ABK influx? Or did it shrink 20%, hidden by the same? How are we supposed to look at these financials and relate them to previous to understand the XB business?

but we’ve seen this before in many times and no one has done it like this. We’ve had tons of mergers in the past and no one not a peep has said this. Did we do this when azure took off while windows was flopping?
Did we do this was iPhone sales were taking off while iPod sales were cratering?

I’m not sure how it’s not insightful though? It’s very insightful to me, it tells us what we know to be true, that software is more profitable than hardware and that taking 66% of many millions is way more profitable than taking 100% of barely a million.

I would say that even in the worse of situations like they are now, the Xbox team has significantly higher revenue very comparable to when they were at their peak and most people would define that time as “dominating the market”. That signals to me that the business is safe. That at their absolute worse performance, they are comparable to when they were previously at their absolute peak. I think that’s a very strong sign of health. And now that the new baseline is being established we don’t want to see it drop back down to where they were 2 quarters ago; That would signal that the 68B of investment was lost.

There’s nothing deceptive about this revenue, unless this revenue change is a blip.

 

[Shifty Geezer]

but we’ve seen this before in many times and no one has done it like this. We’ve had tons of mergers in the past and no one not a peep has said this. Did we do this when azure took off while windows was flopping?
Did we do this was iPhone sales were taking off while iPod sales were cratering?

I dunno. I wasn't a part of any conversations about those so had no opinion. My opinions are only in regard this thread. Every previous Sales and Rumours thread has been looking at how these companies shift hardware and software, and each year we see how well they are or not doing based on change over the previous year. We can graph it out and see the ups and downs, impacts of generations, how the generational tail affects revenue is, etc. Take this graph for example:



We see the revenues from the hardware and software, how it diminishes after peak, and how the transition to digital services makes more money. Coupled with net profits, we have a great idea how Sony has operated, losing billions on hardware, winning market share, transforming their business.

Same thing for Xbox:



But the same graph for MS now has a huge jump where the graph isn't for one company but the two companies combined. You'd need to graph MS+ABK revenue over time. In fact, let's look at this in an above PS hypothetical scenario. We know from FY07 to FY08, PS growth was negative around 20%:



Sales of hardware and software across the generation was down. But what if Sony acquired a publisher in FY08 that increased revenue 50% for FY08? Graph would look like this...



...and we wouldn't be able to see that everything PlayStation independent of that acquisition was shrinking, not growing. Revenues are up, but the PlayStation aspect, the hardware and software sales making up revenue in previous years, is down. FY07 was the crest of the generational revenue wave, obviously, yet with the revenue spike of the hypothetical acquisition we wouldn't be able to see that.

 

[iroboto]

I dunno. I wasn't a part of any conversations about those so had no opinion. My opinions are only in regard this thread. Every previous Sales and Rumours thread has been looking at how these companies shift hardware and software, and each year we see how well they are or not doing based on change over the previous year. We can graph it out and see the ups and downs, impacts of generations, how the generational tail affects revenue is, etc. Take this graph for example:

View attachment 11215

We see the revenues from the hardware and software, how it diminishes after peak, and how the transition to digital services makes more money. Coupled with net profits, we have a great idea how Sony has operated, losing billions on hardware, winning market share, transforming their business.

Same thing for Xbox:

View attachment 11221

But the same graph for MS now has a huge jump where the graph isn't for one company but the two companies combined. You'd need to graph MS+ABK revenue over time. In fact, let's look at this in an above PS hypothetical scenario. We know from FY07 to FY08, PS growth was negative around 20%:

View attachment 11215

Sales of hardware and software across the generation was down. But what if Sony acquired a publisher in FY08 that increased revenue 50% for FY08? Graph would look like this...

View attachment 11220

...and we wouldn't be able to see that everything PlayStation independent of that acquisition was shrinking, not growing. Revenues are up, but the PlayStation aspect, the hardware and software sales making up revenue in previous years, is down. FY07 was the crest of the generational revenue wave, obviously, yet with the revenue spike of the hypothetical acquisition we wouldn't be able to see that.

I can see where you are coming from, but I feel like that comes from a position of comfort. You're comfortable being able to analyze and predict the seasonality of a traditional console model. You're witnessing right now the transition of that model into something else. It no longer needs to follow that seasonality anymore - and as an investor I don't want to see the same trend at all. If the model is changing, I expect to see something else entirely, otherwise you're just getting a graph of f(x) + g(x). It's completely okay to look at a graph and say this is where Xbox's future long term strategy began and look at its quarter over quarter and just follow what their forecasts are because we've never seen this happen before, so how could we analyze and say that anything here is 'out of place' or a 'sign of bad health'. Or... 'deceptive' in this case. This is their new mode.
There's been 2 quarters now and they follow the forecasts that MS has set out.
Prior to closing ABK, they had already forecast the revenues for Q2 and Q3. They are now doing Q4. If results are matching forecasts, then we can trust the analysis that MS is providing for the forecast. Gamers are just finding out what MS already told investors what would happen.

Let's look at what they said last year

We’ll also see the impact of Microsoft’s giant Activision Blizzard acquisition over the coming quarters, with Hood revealing bigger gaming revenues and Xbox content revenues thanks to the deal. Microsoft is expecting to see overall gaming revenue grow in the mid to high 40 percent range and Xbox content and services to be up in the mid to high 50 percent range in fiscal Q2, 2024.

And the results for that Q2 Quarter

• Microsoft shared its financial results for FY24 Q2, the quarter ending on Dec. 31, 2023.
• Gaming revenue is up 49% year-over-year.
• Xbox content and services revenue is up 61% year-over-year.
• Xbox hardware revenue is up 3% year-over-year.

And let's look at their forecast for Q3

Microsoft CFO Amy Hood expects overall gaming revenue to grow in the low 40 percent region, with 45 points due to Activision Blizzard. That means the rest of Microsoft’s gaming efforts revenue could be down next quarter. Xbox content and services in Q3 is expected to be “low to mid 50” percent, driven by around 50 points of net impact from the Activision Blizzard acquisition. “[Xbox] hardware revenue will decline year-over-year,” for Q3, says Hood.

And how did they do?

• Q3 revenue rose 51% to upwards of $5.45 billion.
• This was above management’s, and my, expectations.
• It’s an all-time Q3 record, and Xbox’s second best quarter ever.
• Out of that percentage gain, 55% was due to ActiBlizz impact.
• Implies all other areas like Xbox, Bethesda etc saw a decline of 4%.

Pretty spot on.

So what is the forecast for next quarter?

Microsoft CFO Amy Hood says the company is expecting Xbox hardware revenues to decline again next quarter, alongside overall gaming revenue growth in the low to mid 40 percent region, with around 50 points of impact from Activision Blizzard. Xbox content and services revenue is expected to be up in the high 50 percent region in Q4, driven by 60 points of impact from Activision Blizzard.

Here are the expectations shared by Chief Financial Officer (CFO) Amy Hood for Q4 gaming performance.

• Total gaming revenue growth in the low to mid-40s.
• 50 points of that via ActiBlizz impact.
• Xbox C&S expected to grow in the high 50s.
• 60 points there from ActiBlizz, thus implying everything else will be down 10%.
• Xbox Hardware will “decline again.” Based on my math, it will be down 24%.

Using these to make certain assumptions, that translates to the following in dollar terms:

• Total gaming revenue around $5 billion.
• Xbox C&S revenue upwards of $4.55 billion.
• Xbox Hardware hitting $450 million.

MS is providing the separation for you. I want to know where the deception is, they literally tell you before it happens.

MS expected historical + forecast:

 

[Shifty Geezer]

MS is providing the separation for you. I want to know where the deception is, they literally tell you before it happens.

You're putting words into my mouth and I think that's affecting your interpretation of what I'm saying somewhat. I've not called it a deception. It's all fact. I'm saying that figure, the 50% revenue growth, isn't comparable to other years - because things was done different. In an article reporting growth, that figure isn't akin to other articles pasted over the years reporting company revenue growth. That's it.

And it was in response to that one article. I explicitly called out there may be more transparency...

We're left clueless (unless there are more details in the financials that these articles haven't touched upon, but I don't expect MS to break down the numbers to something we can follow because they don't).

If they broke them down against my expectations, just needs a link to correct me.

 

[iroboto]

You're putting words into my mouth and I think that's affecting your interpretation of what I'm saying somewhat. I've not called it a deception. It's all fact. I'm saying that figure, the 50% revenue growth, isn't comparable to other years - because things was done different. In an article reporting growth, that figure isn't akin to other articles pasted over the years reporting company revenue growth. That's it.

And it was in response to that one article. I explicitly called out there may be more transparency...


If they broke them down against my expectations, just needs a link to correct me.

Yea I’m sorry about that. For some reason I thought you were linking this article.

Xbox Gaming Segment Gets Another Boost Thanks to Activision Blizzard - IGN

Microsoft's gaming revenue climbed significantly year over year, according to its Q3 earnings report. But the massive jump in takings is deceptive — most of it is just reflective of the addition of Activision Blizzard.

www.ign.com

I don’t think you’re going to get the breakdown. The growth numbers are misleading if they aren’t providing context. But MS has been transparent here in their reporting.