Microsoft (MSFT) has announced it is making major changes to the company, including layoffs and a shift in focus to AI. The Windows developer said Monday it will lay off thousands of employees in its Xbox workforce, roughly 20%, along with dropping several game studios. 1,600 Xbox employees are currently being let go, with another 1,250 roles being eliminated over the next year.
In a statement, Microsoft executives acknowledged that the company had misread the economic challenges facing the video game industry. “Our platform teams are 40 percent larger than they were at the start of this generation, even as our player base and playtime have declined,” Asha Sharma, Xbox’s chief executive, wrote in a letter to employees. “As we reset Xbox, we will simplify.” Microsoft stock (MSFT) fell more than 1% on the news.
Microsoft’s gaming industry has been performing poorly in the last few years, alongside Nintendo, Sony, and other big players. The video game industry, like the rest of the consumer technology market, is facing an unprecedented memory and storage crisis. Microsoft has raised prices on its Xbox consoles to contend with the rising cost of the components, as have Sony and Nintendo. Asha Sharma was brought in last year to help revitalize Xbox, but the task has ultimately been difficult.
“Our business today is not healthy,” she added in an email to employees. “We are operating at margins that are 3-10x lower than comparable platform and publishing businesses. We must reset XBOX.”
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At press time, MSFT stock is trading at $384, down over 20% year-to-date. Still, Wall Street analysts believe that Microsoft (MSFT) has plenty of rebound potential. Indeed, analysts at Zacks believe that Microsoft stock could climb above $400 next. Their forecast indicates that MSFT has a slim chance of slipping below the $300 level. This makes an entry position into the equity a promising affair, as the upward potential is greater than the downside risk. The firm gave MSFT a ‘hold’ rating, urging traders not to sell the equity, as an upward tick is on the cards. According to the price prediction from the Zachs Research Team, Microsoft stock could reach a high of $473. That’s an uptick and return on investment (ROI) of approximately 25% from its current price.