Microsoft Corporation (MSFT), the global technology company behind Windows, is cutting deeper into its Xbox business as it looks to fix one of its weaker divisions.
According to various reports, Microsoft is laying off about 4,800 employees, or roughly 2% of its total workforce. However, the cuts are focused mostly on sales and the company’s gaming division. Moreover, Microsoft is planning to sell at least four small gaming studios, with a fifth studio also expected to be divested.
The move comes as Xbox faces pressure from weak growth in the gaming market and higher hardware costs. The report said Microsoft will also cut another 1,600 gaming jobs over the next year, bringing the total reduction in its gaming unit to about 20%.
Meanwhile, MSFT shares dropped nearly 1% on Monday, closing at $386.74.
Xbox Faces a Hard Reset
Asha Sharma, Microsoft’s new gaming chief, had already signaled gaming cuts last month. In a staff memo also posted on X, she said that “our business today is not healthy,” an unusually direct comment from a senior executive.
Microsoft’s gaming business has grown through large acquisitions, including its $75.4 billion purchase of Activision in 2023. Still, the studios now being sold appear to be much smaller assets. Four of the five identified studios were reportedly acquired in Microsoft’s fiscal year 2019 for less than $300 million.
For MSFT investors, the cuts suggest Microsoft is trying to focus its gaming spending on projects with stronger return potential. While Xbox remains a major consumer brand, it is not the core driver of Microsoft’s valuation. So, the bigger question is whether management can keep cleaning up weaker areas while protecting the company’s stronger growth engines, especially cloud and AI.
Is Microsoft Stock a Buy, Sell, or Hold?
Turning to the Street, Microsoft Corporation has a Strong Buy consensus, based on 37 analysts issuing ratings in the past three months. The average MSFT stock price target is $560.97, implying about 45% upside from the current price.
