Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Can the Xbox Save Microsoft Corporation (MSFT)?

Microsoft Corporation (NASDAQ:MSFT)Microsoft Corporation (NASDAQ:MSFT) is hoping that diehard gamers will save the day. Shares of the software giant moved sharply lower on Friday after posting disappointing quarterly results, but one of the rare pockets of inspirational growth in the report was a 20% spike in transactional revenue within Xbox Live.

Microsoft Corporation (NASDAQ:MSFT) revealed that there were 46 million Xbox Live subscribers earlier this year, and apparently they’re growing more comfortable in spending money within the platform. That’s important, because the video-game industry itself is mired in a funk.

Industry sales have been sliding for four years, and things aren’t getting any better. Trend tracker NPD Group reported late on Thursday that industry sales fell 15% in June, weighed down by a 30% plunge in hardware sales.

No one’s freaking out just yet, though. With Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) set to update their consoles later this year, it’s perfectly natural for gamers to be holding back from buying new systems. Why buy a PS3 or Xbox 360 when the PS4 and Xbox One are now just a couple of months away?

However, keep in mind that the industry’s been slumping since 2009. It wasn’t the anticipation of new consoles that was holding back gamers then. The growing popularity of apps played on smartphones and tablets has siphoned off a lot of casual video-game players. It’s not just Microsoft’s Windows business that’s been hurt by the growing popularity of iOS and Android devices.

The silver lining is that Microsoft Corporation (NASDAQ:MSFT)’s Xbox 360 is the top dog in this country. The console has been the top-selling system for 30 consecutive months, and momentum would certainly suggest that the Xbox One will be the country’s top choice later this year.

Sure, Microsoft didn’t do itself any favors by pricing its system $100 more than Sony Corporation (ADR) (NYSE:SNE). Microsoft also upset the gaming community with restrictive features of the new platform, though it did backtrack on the more controversial measures, something that Sony Corporation (ADR) (NYSE:SNE) savored in pointing out during last month’s E3 conference.

Hardcore gamers are still a potent market for Microsoft. They make up one of the few categories that’s gaining ground on the competition. On the other hand, the pie is getting smaller. Microsoft Corporation (NASDAQ:MSFT) conceded on Thursday that it shipped 100,000 fewer Xbox 360 systems in its latest quarter than it did during the same period a year earlier.

However, the 20% increase in transactional revenue — despite the overall decline in Xbox platform revenue during the quarter — points to a future where Microsoft can deliver digital goodies to tens of millions of players. As Microsoft expands its Xbox One system beyond gaming, ambitiously aiming to transform everything from the way we watch TV to shop online, it’s one of the few reasons to get excited about Microsoft Corporation (NASDAQ:MSFT) in an age where PC sales continue to slide and Windows becomes less relevant in an operating system-agnostic world. It will never be enough to offset the high-margin Windows revenue that investors have enjoyed for years, but it should help slow the software giant’s slide in relevance.

Don’t let Mr. Softy down, diehard gamers.

The article Can the Xbox Save Microsoft? originally appeared on and is written by Rick Munarriz.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.