Microsoft Gaming Revenue Drops as Xbox Hardware Falls 32 Percent

Microsoft Gaming Revenue Drops as Xbox Hardware Falls 32 Percent

Microsoft reported in its second quarter for FY2026 that Gaming revenue fell 9 percent, while Xbox content and services revenue decreased 5 percent year over year. During its earnings call for the quarter ended December 31, the company said its overall revenue was up 17 percent, driven by its Cloud business, but the Gaming division fell across different metrics.

Key metrics

Xbox content and services revenue fell 5 percent year over year and was below expectations, Microsoft CFO Amy Hood confirmed during the earnings call. The decline was driven by a lack of Xbox first-party content with impact across the platform, Microsoft said.

Microsoft Gaming revenue decreased 9 percent, while Xbox hardware revenue fell 32 percent. The company expects Xbox content and services revenue to decline in the mid-single digits in the third quarter, citing “strong content performance” from a year prior for comparison. The decline is expected to be partially offset by Xbox Game Pass growth, Microsoft said. The company did not report Xbox Game Pass growth for the quarter.

Microsoft CEO Satya Nadella said the company was “committed to delivering great games across Xbox, PC, cloud, and every other device”. He also said that the third quarter saw record PC players and paid streaming hours on Xbox.

The Xbox decline stood in contrast with Microsoft's overall business, which posted revenue of $81.3 billion for the quarter — up 17 percent year over year. Q3 operating income was $38.3 billion. Microsoft Cloud revenue was $51.5 billion in the quarter, up 26 percent.

Microsoft's personal computing business, which includes Windows OEM and Devices, Gaming, and Search and News Advertising, fell three percent. Windows OEM and Devices revenue increased 1 percent. The company announced that Windows 11 reached 1 billion users in the quarter, up over 45 percent year over year.