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Instant Analysis: Will Another Price Cut Help Microsoft's Xbox One Catch Up to Sony's PlayStation 4?

By Keith Noonan – Jul 26, 2016 at 6:46PM

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Microsoft's Xbox One receives another price cut, but it probably won't be a deciding factor in getting the Xbox family back on track.

Image Source: Microsoft

Microsoft (MSFT -1.89%) has lowered the price of its Xbox One 500 GB console to $249, with the price cut also extending to units that are bundled with software. The company's Xbox Wire website gives the following breakdown:

This means any 500GB Xbox One console is $249, including the Gears of War: Ultimate Edition bundle, the Special Edition Quantum Break bundle with white console, and the Name your Game bundle, which allows you to choose a full game download of one of four blockbuster titles: Forza Motorsport 6Rise of the Tomb RaiderGears of War: Ultimate Edition, or Rare Replay.

The move makes the standard Xbox One console $100 cheaper than Sony's (SONY -1.43%) baseline PlayStation 4 model and represents the third price reduction on Microsoft's console within the last two months. Prior to the most recent reduction, the 500 GB Xbox One retailed at $279.

Microsoft's latest console stumbled out of the gate due to a series of unpopular design choices and a poor product rollout. It has failed to keep pace with Sony's PlayStation 4. Previous price cuts and bundles have not been able to drive sales momentum -- Xbox One sales are believed to be somewhere in the neighborhood of 20 million units, while PlayStation 4 unit sales surpassed 40 million units as of May.

Does it matter?

The price reduction from $279 to $249 for the 500 GB Xbox One will likely do little to improve the standing of the overall platform and should not be a significant factor in an investment thesis on Microsoft. The Xbox business is worth watching, particularly as part of the company's overall cloud and operating-system strategies, but the most recent price reduction seems mostly indicative of a desire to clear out hardware inventory in the lead-up to the release of new Xbox One S consoles. That the console was not selling particularly well was already known, and the latest price adjustment is probably not big enough to generate interest that changes the overall picture.

At this point, the company's chances for revitalizing the Xbox One family look dependent on the soft relaunch with the slim S-line systems (due for release in the U.S. and certain other countries on Aug. 2) and the more credible platform reintroduction with the more powerful Scorpio line (due to launch in 2017). 

Microsoft's inability to substantially energize Xbox One sales with price cuts and major software releases is notable and gives reason for a cautious outlook on its attempts at relaunches -- particularly the S-line consoles. PlayStation 4 has managed to outsell the Xbox One, despite Microsoft undercutting its rival in the space and releasing games in high-profile series including Halo, so a slimmer version of the One probably won't change the picture too much. The most important factor in the future of Xbox hardware remains the launch of Xbox One Scorpio next year.

Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Microsoft Stock Quote
Microsoft
MSFT
$250.20 (-1.89%) $-4.82
Sony Group Stock Quote
Sony Group
SONY
$81.61 (-1.43%) $-1.18

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