For years, Sony's (SONY 1.73%) PlayStations have dominated the world of gaming consoles, outselling Microsoft's (MSFT 0.60%) Xboxes by big margins. Now, though, it looks like the American tech giant has started to turn the tables on its Japanese rival.
Based on the figures Microsoft released on April 26 for its fiscal 2022 third quarter (which ended March 31), thanks to its latest Xbox Series X and Series S consoles, it has been gaining ground in the console gaming hardware market. That growth could prove to be a big catalyst for the company in the long run.
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Sony's PS5 sales seem to be losing momentum
"With our Xbox Series S and X consoles, we have taken share globally for two quarters in a row, and we are the market leader this quarter among the next-gen consoles in the United States, Canada, U.K., and Western Europe," Microsoft CEO Satya Nadella said on the company's latest earnings conference call. Third-party data suggests that Microsoft is indeed beating Sony's PlayStation 5 console.
According to video game sales tracking website VGChartz, Microsoft sold 500,000 Xbox Series X/S consoles in March. In addition, market research firm NPD Group points out that the dollar sales value of Microsoft's latest-generation console was higher than the PS5 in March in the U.S., and noted that the company achieved its highest monthly Xbox revenue in eight years. In terms of units sold, the Xbox Series X/S consoles delivered Microsoft's best March console sales performance since 2011.
NASDAQ: MSFT
Key Data Points
Those robust console sales are helping it close the gap with Sony. VGChartz estimates that the PS5 hit lifetime sales of nearly 19 million units in the week that ended on April 16. The Xbox Series X/S consoles, meanwhile, hit lifetime sales of 14.2 million units.
For reference, at the end of 2021, Sony was reportedly selling PS5s at a rate 1.6 times as fast as Microsoft was selling Xbox Series X/S consoles.
And at that time, the installed base of the latest Xbox consoles reportedly stood at 10.5 million units, while Sony had reportedly shipped a total of 17 million PS5s. So, the PS5 had a clear advantage as far as sales momentum was concerned, especially considering that both consoles were launched in November 2020.
But the latest estimates indicate that the Xbox is outselling the PS5 this year. Those stronger console sales could set Microsoft's video gaming business up for solid long-term growth.
Microsoft's video gaming business could boom big time
Microsoft's video gaming business has grown consistently over the years, but the launch of the latest generation consoles has accelerated that trend. In its fiscal 2021, which ended June 30, Microsoft generated $15.4 billion in gaming revenue, up nearly 33%. For comparison, the gaming segment's revenue essentially remained flat year over year in fiscal 2020 at $11.6 billion.
NYSE: SONY
Key Data Points
Last quarter, Microsoft said that its Xbox hardware revenue was up 16% in constant-currency terms over the prior-year period. Meanwhile, revenue from Xbox content and services was up 6% thanks to higher sales of Xbox Game Pass subscriptions and first-party gaming titles. Third-party sources indicate that Microsoft generated $3.74 billion in video gaming revenue last quarter. This was the first time the company had crossed the $3 billion mark in a March quarter.
What's more, Microsoft generated $12.8 billion in gaming revenue in the first three quarters of its fiscal 2022. That run rate indicates that the company is well on its way to delivering another year of strong growth in gaming. More importantly, the current gaming console generation is in an early stage of its sales cycle. Mordor Intelligence estimates that gaming console sales could increase at an annual pace of 15% through 2026, and Microsoft's improving share of those sales should help it capture a bigger share of the overall market.
More importantly, an increase in the number of consoles sold would allow Microsoft to sell more gaming content and subscription services, given the company's moves to expand its gaming library. That's where the actual money is: Video game content and services accounted for 81% of Microsoft's gaming revenue last quarter.
With video game sales expected to generate nearly $240 billion in revenue by 2026 -- up from this year's estimate of $175 billion -- Microsoft's console sales are gaining momentum at the right time. Sustained success against Sony could give it a shot in the arm and help it clock a faster annualized earnings growth rate than the 16% that analysts are currently forecasting over the next five years.
