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[I Master l]

Update:

Btw, the author of the article took down that chart.



OP should be updated.

FYI - margins are not operating profit, as the title of this thread incorrectly suggests. For example, Contribution Margin does not usually include fixed costs.

This CFO and Financial Analyst explains this whole thing well. Folks who have studied accounting would understand it easily.

Microsoft is very selective in what data it releases on its various divisions. This includes gaming, which is now Microsoft's fourth best-earning business in terms of revenue with $15.4 billion earned in FY23. Every quarter, Microsoft will report three metrics on the Xbox business: content & services earnings, hardware revenues, and a finalized Xbox gaming number. Sometimes Microsoft will also release a new Xbox Game Pass figure, but they haven't done that for some time.

This is a big departure from Nintendo and Sony, both of which reveal revenue and profit numbers for their games businesses. Microsoft, however, has never discussed Xbox's profits. Now thanks to a series of documents and files that were accidentally leaked as part of the FTC v Microsoft federal trial, we have an idea of how healthy Xbox actually is.

According to an internal Gaming CSA (Customer Service Area) slide deck, the Xbox games division had an accountability margin of $1.5 billion for the first 9 months of FY22 (July 2022 - March 2023)

According to our findings, Xbox gaming had a 12% accountability margin (AM) for 9 month period in FY22. However, in the aforementioned testimony, Spencer says that "the Xbox business today runs at a single-digit profit margin."

Comparing this number with the other Big 3 players isn't exactly straightforward. The accountability methods may be different. We're not entirely sure how Microsoft calculates its accountability margin, but the closest comparisons we have are PlayStation's $1.419 billion in operating income, which represents a 7% margin, and $2.977 billion in net profit from Nintendo, which represents a strong 25% margin.

Source

Xbox profits revealed in new FTC leak

Gamers, investors, consumers and competitors finally get a concrete answer on just how profitable Microsoft's Xbox video games division actually is.

www.tweaktown.com

Interesting to see that Xbox profit margin is slightly higher than PS

 

[adamsapple]

Interesting to see that Xbox profit margin is slightly higher than PS

If this is FY 22, then the PS column likely includes R&D for VR2 as well.

But regardless, interesting to see that Xbox is a profitable wing now, in the first place, and not a loss-leader.

 

[Topher]

If this is FY 22, then the PS column likely includes R&D for VR2 as well.

But regardless, interesting to see that Xbox is a profitable wing now, in the first place, and not a loss-leader.

Yeah, I was going to say, costs during a product launch bring profitability down quite a bit.

 

[SlimySnake]

Sonys profit margins are trash.

Is it because of the bungie acquisition eating into their profits.

 

[Topher]

Sonys profit margins are trash.

Is it because of the bungie acquisition eating into their profits.

PS VR2

 

[Tiago Rodrigues]

Sony had a few aquisitions during that period, plus VR2 was about to be released. Let's not forget that.

 

[Tsaki]

If this is FY 22, then the PS column likely includes R&D for VR2 as well.

But regardless, interesting to see that Xbox is a profitable wing now, in the first place, and not a loss-leader.

It also includes the Bungie acquisition.

 

[DrFigs]

Sony had a few aquisitions during that period, plus VR2 was about to be released. Let's not forget that.

do we have numbers for sony in 2022? it would be a better comparison then.

edit: what am i saying? no it wouldn't. but it would be interesting

 

[Topher]

Sony had a few aquisitions during that period, plus VR2 was about to be released. Let's not forget that.

I don't think acquisitions are included in income statements. That is a balance sheet change.

 

[vivftp]

Sonys profit margins are trash.

Is it because of the bungie acquisition eating into their profits.

Bungie was a 2.4 billion dollar expense for SIE, and the remaining 1.2 billion was to be paid out for employee retention over an unknown period of time. It's possible some of that also fell into this window.

Only thing I'm not sure of is the entire Bungie 2.4 billion was accounted for in this 12 month window, or if it's being spread out further.

I don't think acquisitions are included in income statements. That is a balance sheet change.

The chart shows for Sony that it's net revenue and operating income being listed, wouldn't that factor in the acquisitions?

 

[Humdinger]

We're not entirely sure how Microsoft calculates its accountability margin

Does MS include the cost of their acquisitions, I wonder?

 

[Gamer_By_Proxy]

This has already been debunked garbage. Look at the small print on the top of the bar graph.

 

[Del_X]

This is why Sony is crushing it in the console space. They literally cannot afford to fuck it up.

 

[Jinzo Prime]

Holy shit, how much does it cost to produce a PS5? If Sony was making money per unit sold, they would be destroying Xbox in operating profit, but they aren't. I'm confused.

 

[Freelance Yakuza]

Sonys profit margins are trash.

Is it because of the bungie acquisition eating into their profits.

Mark Cerny ain't cheap

 

[Topher]

The chart shows for Sony that it's net revenue and operating income being listed, wouldn't that factor in the acquisitions?

I don't think so. That's not an expense, per se. An acquisition is a change in assets. That's what has been said in the past when discussing acquisitions. Phil Spencer said this as well during his FTC testimony.

 

[Del_X]

Holy shit, how much does it cost to produce a PS5? If Sony was making money per unit sold, they would be destroying Xbox in operating profit, but they aren't. I'm confused.

IMO they lose more revenue because of their refusal to go day-and-date on PC.

 

[Chukhopops]

Does MS include the cost of their acquisitions, I wonder?

Doesn’t go into P&L as per standard accounting rules*.

The only thing that would go into P&L would be changes in valuation for example.

This has already been debunked garbage. Look at the small print on the top of the bar graph.

The competitor part seems dodgy but why would MS misrepresent its profit in its own documents?


* just to be clear I mean the cost of the acquisition itself, obviously the operating costs of acquired companies would go in it as long as they are part of the division reporting.

 

[AJUMP23]

Most industries would like at a minimum of 12%. I was in a job where the company left the sector and laid up off because we only had a 6% margin and they didn't like it.

 

[Riky]

I don't think so. That's not an expense, per se. An acquisition is a change in assets. That's what has been said in the past when discussing acquisitions. Phil Spencer said this as well during his FTC testimony.

Correct, buying publishers is not a profit and loss entry apart from the costs of the running those businesses and the increase in revenue that comes with that.

 

[Gamer_By_Proxy]

Bungie was a 2.4 billion dollar expense for SIE, and the remaining 1.2 billion was to be paid out for employee retention over an unknown period of time. It's possible some of that also fell into this window.

Only thing I'm not sure of is the entire Bungie 2.4 billion was accounted for in this 12 month window, or if it's being spread out further.




The chart shows for Sony that it's net revenue and operating income being listed, wouldn't that factor in the acquisitions?

It's literally different metrics for each company, and then pretending it's all the same and throwing it on a bar graph. It's complete garbage.

 

[BlackTron]

Anyone else notice Nintendo's operating profit is as big as both competitors combined?

This is the kind of stuff I think about when people say stuff like "MS could never buy Nintendo...unless Switch 2 flops then who knows". Nintendo can tank an entire generation (and they have). They stash massive cash reserves and make more returns for less work.

 

[Gamer_By_Proxy]

Doesn’t go into P&L as per standard accounting rules*.

The only thing that would go into P&L would be changes in valuation for example.

The competitor part seems dodgy but why would MS misrepresent its profit in its own documents?


* just to be clear I mean the cost of the acquisition itself, obviously the operating costs of acquired companies would go in it as long as they are part of the division reporting.

Do you really think "accountability margin" is the same thing as profit? There is no profit on here.

 

[Topher]

It's literally different metrics for each company, and then pretending it's all the same and throwing it on a bar graph. It's complete garbage.

Yeah, I was wondering about that. Microsoft is calling this "accountability margin". That doesn't seem to be a standard method for calculating profit. Googling that I'm not finding anything.

 

[Humdinger]

[Aquisitions] Doesn’t go into P&L as per standard accounting rules*.

Oh, okay. Well, that's a pretty large exclusion, especially in this case.

 

[ungalo]

It doesn't take into account the acquisitions i believe. Playstation was always in that range.

Which is why i find the profit of Microsoft hard to believe. I don't know if it has something to do with accounting.

 

[SportsFan581]

This info was basically released quite a ways back, that chart was released with MS's numbers redacted. But since the chart was in ranked order and we could see the other results listed, we had a relatively tight range of where they were landing.

 

[zedinen]

Accountability margin and Operating income are two completely different things.

If this is FY 22, then the PS column likely includes R&D for VR2 as well.

But regardless, interesting to see that Xbox is a profitable wing now, in the first place, and not a loss-leader.

It's a loss leader

Sonys profit margins are trash.

Is it because of the bungie acquisition eating into their profits.

And yet their ROIC is insane.

 

[Cyberpunkd]

Dat Nintendo profit margins, holy shit.

 

[mejin]

In this case, accountability margin is what MS would like the profits to be, no? That's why Spencer said "the Xbox business today runs at a single-digit profit margin."

"We're not entirely sure how Microsoft calculates its accountability margin, but the closest comparisons we have are PlayStation's $1.419 billion in operating income, which represents a 7% margin, and $2.977 billion in net profit from Nintendo, which represents a strong 25% margin."

I think this is bullshit.

 

[a multicultural team of v]

Do you really think "accountability margin" is the same thing as profit? There is no profit on here.

Accountability margin sounds like an entirely made up income method that is non-GAAP, which is then being compared to Sony/Nintendo income which is GAAP. It is a pointless comparison unless they explain what accountability margin actually is.

Besides, I think the more interesting information in the OP is that they projected 35 million Gamepass subs by end of FY23, and with one quarter to go they only have 24 million.

 

[ReBurn]

Bungie was a 2.4 billion dollar expense for SIE, and the remaining 1.2 billion was to be paid out for employee retention over an unknown period of time. It's possible some of that also fell into this window.

Only thing I'm not sure of is the entire Bungie 2.4 billion was accounted for in this 12 month window, or if it's being spread out further.




The chart shows for Sony that it's net revenue and operating income being listed, wouldn't that factor in the acquisitions?

Acquisitions are changes in assets, not revenue based. Revenue streams from acquired assets would show up in revenue, but probably not the cost of the assets.

 

[PaNaMa]

Phil's whole thing about Microsoft exiting gaming by 2027 if Gamepass doesn't triple its subscription or whatever is just dog and pony for the FTC. Like they are gonna walk away from 15+ billion a year cause it's "just not sustainable" LOL

 

[Riky]

Phil's whole thing about Microsoft exiting gaming by 2027 if Gamepass doesn't triple its subscription or whatever is just dog and pony for the FTC. Like they are gonna walk away from 15+ billion a year cause it's "just not sustainable" LOL

Yes it's obvious to anyone really, they will say anything about their plans to get this through.

 

[Elysium44]

Comparing this number with the other Big 3 players isn't exactly straightforward. The accountability methods may be different. We're not entirely sure how Microsoft calculates its accountability margin, but the closest comparisons we have are PlayStation's $1.419 billion in operating income, which represents a 7% margin, and $2.977 billion in net profit from Nintendo, which represents a strong 25% margin.

So it's a clickbait article.

tl;dr - "we don't know what Xbox's profits are."

 

[DenchDeckard]

So wait, After all the years of talking about does Xbox make profit...Does GamePass make profit? it ends up that they are making more than Sony?
Is this real?

 

[DeepEnigma]

OMG we love Sales Age again!

This is normal. The more you sell at a loss, the less profit you will make in the beginning of a new gen.

 

[Topher]

So wait, After all the years of talking about does Xbox make profit...Does GamePass make profit? it ends up that they are making more than Sony?
Is this real?

No

 

[ResilientBanana]

If this is FY 22, then the PS column likely includes R&D for VR2 as well.

But regardless, interesting to see that Xbox is a profitable wing now, in the first place, and not a loss-leader.

Did people really expect Microsoft to hang onto a brand and invest in it if it didn't make money? No corporation would do this in their right mind. Shareholders would eat them alive.

 

[ProtoByte]

Sonys profit margins are trash.

What would you like them to be higher? Lol, we won't necessarily be the ones to benefit from that. But at least you know they're not profiteering.

Yeah, I was wondering about that. Microsoft is calling this "accountability margin". That doesn't seem to be a standard method for calculating profit. Googling that I'm not finding anything.

Yeah, I simply don't buy this on it's face. Microsoft has always used funny math with Xbox, and this is not different.

 

[vivftp]

I don't think so. That's not an expense, per se. An acquisition is a change in assets. That's what has been said in the past when discussing acquisitions. Phil Spencer said this as well during his FTC testimony.

I fully admit my ignorance on the matter and I'm trying to piece it together. I believe in previous reports Sony has said that operating income was lower due to costs associated with Bungie, but someone would have to fact check me on that. Even if the acquisition itself wasn't included in that number, I would imagine part of the 1.2 billion payout for employee retention would be

 

[Elysium44]

Did people really expect Microsoft to hang onto a brand and invest in it if it didn't make money? No corporation would do this in their right mind. Shareholders would eat them alive.

According to the article which some are now treating as gospel:

Gamers, investors, consumers and competitors finally get a concrete answer on just how profitable Microsoft's Xbox video games division actually is.

Read more: https://www.tweaktown.com/news/93375/xbox-profits-revealed-in-new-ftc-leak/index.html

Until today, even investors didn't know if it was profitable? And yet despite not knowing, it must have been otherwise they would have eaten them alive? Make it make sense.

 

[sankt-Antonio]

Acquisitions are changes in assets, not revenue based. Revenue streams from acquired assets would show up in revenue, but probably not the cost of the assets.

Depending on the situation. If the money allocated for buyout is set on hold until the buyout is clear it can "count" in the revenue stream.

 

[BlackTron]

Phil's whole thing about Microsoft exiting gaming by 2027 if Gamepass doesn't triple its subscription or whatever is just dog and pony for the FTC. Like they are gonna walk away from 15+ billion a year cause it's "just not sustainable" LOL

If I was the FTC that would raise even more concerns. So they want to buy up all this stuff but will just shut it all down if they don't reach this number? Uh...

 

[Topher]

I fully admit my ignorance on the matter and I'm trying to piece it together. I believe in previous reports Sony has said that operating income was lower due to costs associated with Bungie, but someone would have to fact check me on that. Even if the acquisition itself wasn't included in that number, I would imagine part of the 1.2 billion payout for employee retention would be

I'm no accountant so I'm going by second hand knowledge as well.

 

[Kenneth Haight]

I could give two fucks about how much money a corporation makes, they need to be creating good hardware and most importantly software otherwise it’s inherently meaningless to me as a consumer.

 

[Riky]

Since a company is up for sale it might be running at a loss upon purchase, we don't know if that's the case but with a developer they could have been ramping up for a new game cost wise that the return for is in the future.

 

[mejin]

According to the article which some are now treating as gospel:



Until today, even investors didn't know if it was profitable? And yet despite not knowing, it must have been otherwise they would have eaten them alive? Make it make sense.

Just like the GP at 30M that came out of nowhere just to be corrected later.

 

[adamsapple]

Phil's whole thing about Microsoft exiting gaming by 2027 if Gamepass doesn't triple its subscription or whatever is just dog and pony for the FTC. Like they are gonna walk away from 15+ billion a year cause it's "just not sustainable" LOL

Pretty much. Xbox is a huge business for them to just walk away at this point. Maybe 2013~2014 but at this point it's a very hard pill to swallow.

 

[Pelta88]

Phil Spencer math is always fundamentally flawed. Look at the top of the chart for proof