Microsoft’s Consumer And Gaming Services Posts Strong Growth, Thanks To First Party Games, Bing And Office 365

Microsoft Consumer Services Q2

While many of the analysts are focusing on results of Microsoft’s traditional businesses like Windows, Office and the newly acquired hardware business, Microsoft’s future is on services. The consumer services business posted a strong growth this quarter with a revenue of $2.4 billion, up from $1.9 billion Q2 last year. This segment includes first party video game sales, Xbox Live, Bing and Online advertising and Office 365 for consumers.

D&C Other revenue increased $562 million or 30%, mainly due to higher revenue from first-party video games, Resale, online advertising, and Office 365 Consumer. First-party video games revenue increased $171 million or 79%, mainly due to sales of Minecraft following the acquisition of Mojang Synergies AB (“Mojang”), and the launches of Halo: The Master Chief Collection and Forza Horizon 2 in the current fiscal year. Resale revenue increased $168 million or 42%, due to higher volume of Xbox Live transactions, driven by growth in gaming and entertainment purchases. Online advertising revenue increased $110 million or 10%. Search advertising revenue increased 23%, primarily driven by growth in Bing, mainly due to higher revenue per search, as well as higher search volume. This increase was offset in part by a reduction in display advertising revenue. Office 365 Consumer revenue increased $97 million, reflecting subscriber growth of 169%, and we ended the second quarter of fiscal year 2015 with 9.2 million subscribers.

D&C Other gross margin increased $163 million or 42%, due to higher revenue, offset in part by a $399 million or 27% increase in cost of revenue. D&C Other cost of revenue grew, mainly due to $131 million higher Resale transactions costs, due to higher volume of Xbox Live transactions, and $104 million higher first-party video games costs.

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