Microsoft's new Xbox chief told employees Thursday that the gaming unit plans to match rival profit margins by next year and surpass them by 2030, according to an internal memo reviewed by CNBC.
Asha Sharma, who became Xbox CEO in February after replacing longtime leader Phil Spencer, sent the message to staff as Xbox reported a 10% quarterly revenue decline, its weakest performance since 2022. The same day, Microsoft's overall stock climbed nearly 16%, its strongest single session since 2008, driven by strong results in cloud infrastructure and productivity software.
The margin gap Sharma is working to close is significant. Sharma and Matt Booty, Xbox's chief content officer, said last month they anticipated a 3% internal margin for the gaming unit. Sony reported a 9.9% operating margin from its game and network services division in its latest fiscal year. Nintendo's margin approached 16%.
"We will not live on past successes or be trapped by past failures," Sharma wrote in the memo. "We will learn from both and put our energy into creating what players will love for decades."
Sharma, a former executive at Instacart and Meta, has moved quickly since taking the top job. She has appointed new leaders across the division, lowered Game Pass subscription prices, announced layoffs and divested four development studios. She has also put more emphasis on exclusive titles for the Xbox console, a move that has drawn positive attention from players.
Xbox hardware has lagged behind its competitors. The Xbox Series X and Series S have trailed both the Nintendo Switch and the Sony PlayStation 5 in unit shipments.
Microsoft made a massive bet on gaming in 2023 with its $75.4 billion acquisition of Activision Blizzard, the publisher behind Call of Duty. The deal boosted revenue but left the subsidiary overextended. Consumers were able to access new Call of Duty releases through Game Pass for a low fee and leave without paying full price. Game Pass has since removed the franchise from the subscription tier.
Sharma said every Xbox function and studio will be held responsible for returning the gaming group to growth in both player count and revenue by the end of the fiscal year ending June 2027.
She also outlined ambitions beyond games. "We will build long-term plans for our biggest franchises across film, television, consumer products, sponsorship, live experiences, and form new partnerships globally, including China," she wrote.
Sharma said Xbox plans to invest more heavily in Minecraft, the block-building game Microsoft acquired in 2014 for $2.5 billion. Minecraft surpassed Tetris as the world's best-selling game five years after that purchase. She also said the company wants to grow its share in casual gaming, partly through Activision Blizzard's King division, which publishes Candy Crush Saga.
Microsoft CEO Satya Nadella addressed the gaming unit directly on Wednesday's earnings call, telling analysts the company is "making the necessary decisions required across our content portfolio, platform and operations to reset the business for long-term growth."
The new fiscal year, which will serve as the first test of Sharma's targets, ends in June 2027.
