Insiders revealed that in recent months, a group of private equity firms have been considering acquiring Microsoft's Xbox gaming business, with a valuation range for that segment estimated to be between $100 billion and $150 billion.
According to informed sources, the discussions with private equity firms were merely preliminary explorations that did not last long and did not develop into formal negotiations with Microsoft. However, this incident indicates that if Microsoft's plan to turn around its struggling gaming business fails, it is possible for the company to find a buyer. The list of private equity firms involved in the assessment cannot be confirmed at this time.
A Microsoft spokesperson issued a statement saying: Xbox is not for sale, and they refused to comment further.
Judging from the scale of its business revenue, the upper limit of the private equity valuation range is roughly comparable to the recent leveraged buyout valuation level of gaming giant Electronic Arts ( Electronic Arts ).
The timing of the private equity firm's interest in acquisition coincided with a media report in June: Microsoft had considered splitting off Xbox or reorganizing it into a wholly-owned subsidiary, as such arrangements would lower the threshold for subsequent sales; Microsoft also considered setting up a joint venture with other partners. After that, the management of Xbox under the leadership of Asha Sharma shifted its focus to improving operations and accelerating business growth.
Xbox Business Includes Activision Blizzard: Microsoft spent $75 billion to acquire this game publisher in 2023. The entire division has approximately 14,000 employees. In recent years, this business has had meager profits and declining sales; Microsoft's initial strategy of acquiring multiple game studios failed to generate the expected additional revenue.
In the fiscal year ending June, Xbox's revenue declined by 7% year-on-year to $21.8 billion. Microsoft previously disclosed that its margin of profit attributable to the company (adjusted profit margin) has been on a downward trend over the past year, and as of June, it had dropped to just 3%.
Since Sharma took over the business in February this year, she has been working to turn it around from losses. According to media reports, she announced a plan in July: to lay off 3,200 employees within the next year, which is about 20% of the total staff, while also increasing investment in flagship titles such as "Halo" and "My World".
Even so, Xbox accounts for a relatively small portion of Microsoft's overall business, contributing only 7% of the total revenue; meanwhile, Microsoft continues to invest substantial capital in data centers and other AI projects, which squeezes its free cash flow.
There are very few buyers who can raise over $10 billion on their own to acquire Xbox. If a deal is to be made, it is very likely that multiple private equity firms will need to work together to accomplish it.
If the acquisition by Xbox goes through, its scale will far exceed any previous leveraged buyout in history: Earlier this year, Silver Lake Capital, Saudi Public Investment Fund, and Affinity Partners under Jared Kushner jointly privatized Electronic Arts, with the leveraged buyout valued at $55 billion including debt. This valuation corresponds to Electronic Arts' approximately $7.5 billion in 12-month revenue, which is about 7 times the price-to-sales ratio. Unlike Xbox, Electronic Arts does not have a hardware console business that drags down its profit margin.
The gaming industry experienced rapid growth during the COVID-19 pandemic, but now it is clearly under pressure: sales growth has stagnated; the AI craze has also increased the procurement costs of hardware required for console manufacturing. An internal estimate reported by the media on Tuesday reflects this upward pressure on costs: Xbox internally predicts that the new consoles to be launched in 2028 may have a retail price of $1200–$1800 to consumers.
Xbox The direct competitors in the console business are Sony PlayStation and Nintendo. Sony operates the gaming and online services division PlayStation, with revenue of approximately $29.8 billion in the fiscal year 2025, which was basically flat compared to the previous year, but there has been a decline in sales of consoles and self-developed games.
