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Computing and Gaming Boost Microsoft’s Revenues in 4Q15

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Computing and gaming hardware grew by 50% in 4Q15

In its 4Q15 earnings release, Microsoft’s (MSFT) computing and gaming hardware, a subsegment of D&C (Devices and Consumer) segment, reported revenues of $591 million. This represents an increase of 44% on a YoY (year-over-year) basis and 50% growth on a constant-currency basis. Surface tablets and the Xbox platform contributed most to this growth.

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Surface tablets posted triple-digit growth in 4Q15

This subsegment’s growth was primarily driven by 117% growth in Surface revenues, totaling $888 million. Surface Pro 3 and Surface 3 units launched in June 2014 and May 2015, respectively, led to triple-digit growth in Surface tablet revenues. For the full fiscal 2015, Surface revenue surpassed $3.6 billion, a YoY increase of 65%.

Xbox and online advertising revenues continue to grow

What’s more, Xbox platform revenue grew by 27% in 4Q15 to $86 million, thanks to strong console take-up. In 4Q15, Microsoft Xbox console sales grew 30%, with 1.4 million consoles sold as compared to 1.1 million consoles in 4Q14. This segment is going to benefit even more now because China (FXI) has finally lifted the ban on video game consoles.

Alongside Microsoft and its Xbox One, Sony (SNE) and Nintendo (NTDOY) are the leading players in the gaming space.

D&C Other revenue increased 31% to $538 million. The increase in Xbox Live transactions, search advertising, and first-party video games contributed to this growth. Xbox Live transactions and search advertising revenue grew 58% and 21%, respectively.

In the last part of this series, we noted that revenue growth within the D&C segment had declined in 4Q15. Out of a D&C total $8.7 billion, Surface tablets and accessories contributed $888 million in revenues. Meanwhile, Surface Pro still has a long way to go, as it lags far behind Apple (AAPL) iPad sales.

If you’re bullish on Microsoft stock, you could invest in the PowerShares QQQ Trust, Series 1 (QQQ). This ETF has 8% exposure to Microsoft.

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