Microsoft just released its quarterly report for the three months ended September 30, 2026, which can only mean it's time to check in on Xbox.
The video game division kicked off the fiscal year (FY27) with another dip in performance. This time, Xbox content and services revenue decreased by 2 percent—falling to $5.37 billion from $5.5 billion year-on-year.
Microsoft said that decline was driven by waning Xbox hardware revenue, which fell by 14 percent year-on-year "driven by lower volume of consoles sold."
Xbox third-party content and Game Pass revenue also faltered, offset in part by growth in first-party content.
Notably, Microsoft said operating expenses within its Devices and Consumer division decreased by $122 million (3 percent) "driven by Xbox, [and] offset in part by continued investments in research and development compute capacity and talent."
In a supplemental 8-K filing, Microsoft reiterated how it tracks success within Xbox and explained division revenue is "mainly affected by subscriptions and sales of first- and third-party content, as well as advertising."
"Growth of our Xbox business is determined by the overall active user base through Xbox enabled content, availability of games, providing exclusive game content that gamers seek, the computational power and reliability of the devices used to access our content and services, and the ability to create new experiences," it added.
The video game division has been in a slump for some time. Xbox revenue decreased by 7 percent during the 2026 fiscal year, with hardware sales tumbling by 29 percent annually.
Meanwhile, Xbox, under the guidance of new CEO Asha Sharma, continues to lay waste to its workforce and in July promised to eliminate 3,200 jobs before the end of the current fiscal year in June 2027.
So far, those cuts have targeted notable studios such as id Software, ZeniMax Online Studios, Obsidian, World's Edge, Halo Studios, and more. Others such as Double Fine, Undead Labs, and Compulsion Games have been divested, resulting in layoffs within those teams.
Sharma has promised to return the division to growth, but it remains to be seen whether she'll be able to make good on that pledge.
Across Microsoft as a whole, revenue increased by 19 percent during Q1 to $92.3 billion.
Chris is an award-winning reporter with over a decade of experience covering the video game industry. He was formerly news editor at Game Developer and is currently the founder and editor of this resplendent website.
