Microsoft's Q1 2025 earnings are in, and the results show that Microsoft's software gaming revenue is up significantly, even though Xbox hardware revenue is declining.
The company says its Xbox content and services revenue is up 61 percent year over year compared to the previous quarter – a figure driven by “53 points of net impact from the Activision acquisition,” according to the company's press release. But hardware revenue declined again, falling 29 percent in the quarter, which may have been influenced by Microsoft's continued strategy of making its games more widely available than just Xbox consoles.
During the quarter, Microsoft introduced its new Xbox Game Pass “Standard” tier and increased the price of Xbox Game Pass Ultimate. Arrival of Q1 also seen Call of Duty: Modern Warfare III On Xbox Game Pass, but doesn't include this quarter's impact Call of Duty: Black Ops 6Which was launched last week.
The company's intelligent cloud division was also a bright spot, with total revenue rising 20 percent year over year to $24.1 billion, driven by Azure. Azure and other cloud services revenue was up 33 percent “including 12 points” driven by demand for its AI services. Productivity and Business Processes, which includes its office products, increased revenue 12 percent year over year to $28.3 billion.
Microsoft's OEM and Devices revenues — which are now reported together — were up 2 percent. However, the figure was driven by “growth in Windows OEMs” and “partially offset by a decline in devices,” Microsoft says.
Microsoft, like many other companies, is investing heavily in AI-focused features and tools right now, especially to improve Copilot. “AI-powered transformation is transforming tasks, work artifacts, and workflows in every role, function, and business process,” Microsoft President and CEO Satya Nadella said in a statement. “We are expanding our opportunity and winning new customers as we help them apply our AI platform and tools to drive new growth and operational leverage.”