Xbox shows ongoing decline in recent quarterly results

Microsoft has recently released its quarterly results, showing that despite significant profit growth in other divisions, the Xbox division continues to struggle with persistent declines. This trend has led Microsoft to forecast further declines for Xbox in the future.

Financial results

In Microsoft’s report, the gaming division recorded a revenue decline of $380 million over the past quarter, amounting to a 7% drop. This downturn was mainly driven by lower revenue from Xbox content and services, as well as a sharp decline in hardware sales.

• Xbox content and services fell by 5%.

• Xbox hardware revenue dropped by 33% due to reduced console sales.

• Despite these challenges, gross margin for the overall More Personal Computing division rose by 6%, which was attributed to the company’s advertising and gaming activities.

Future outlook

For the fourth quarter (April 1 - June 30) of 2026, Microsoft has announced that the decline for Xbox is expected to continue. Revenue from Xbox content and services is forecast to fall by the low double digits for the quarter. This is due to a tough comparison with the same period last year, when Microsoft benefited from strong first-party content.

One of the biggest Xbox releases over the past year was the launch of Forza Horizon 5 on PlayStation 5, which generated strong sales. In the fourth quarter of 2026, Forza Horizon 6 is scheduled to release on May 19, launching on PC and Xbox Series X|S, with a PlayStation 5 version following later in the year.

Cost impact

A positive effect of lower console sales was a 10% drop in cost of revenue, bringing it down to $584 million. However, Microsoft also has other hardware platforms contributing to this cost structure, so this decline cannot be fully attributed to lower Xbox sales.

Effort to win players back

Despite the negative financial trends, Microsoft CEO Satya Nadella reported that Xbox has set new records for monthly users and that game streaming hours have also reached record highs. Nadella said the company is currently focused on "winning fans back" for Xbox, citing the recent decision by Xbox CEO Asha Sharma to lower Game Pass prices as an example.

Sharma said in a statement that Xbox has "made progress in expanding the business and margins," but that both revenue and player growth "are still not meeting our ambitions." She acknowledged that there is still work to be done to win every player, both now and in the future.