Xbox Revenue Falls 2% to $5.379 Billion as Hardware Sales Decline 14%
Key Facts
Xbox revenue was about $5.379 billion in the three months ended September 30, 2026, down $129 million, or 2%, from the same period a year earlier, according to Microsoft's quarterly filing with the U.S. Securities and Exchange Commission. The company reported results on October 28, in a report showing total revenue reached $92.3 billion, up 19% year over year. That puts Xbox's decline against a backdrop of strong growth across the company, as the gaming division's revenue continued to contract during the quarter. The figures show that pressure was not evenly distributed across the segment's components; hardware declined more than the overall total. Content and services also diverged across their different sources.
Xbox revenue came in below the $5.508 billion recorded in the three months ended September 30, 2025, reaching $5.379 billion in the corresponding period of 2026. Microsoft said Xbox content and services revenue declined 2% year over year. The company attributed the decrease to declines in third-party content and Xbox Game Pass subscriptions, while growth in first-party content partly cushioned the impact. This activity includes games and in-game content from both first and third parties, as well as Game Pass and other subscriptions. It also includes Xbox Cloud Gaming, advertising and other cloud services, making its revenue broader than sales of individual games or subscriptions alone. The filing did not provide the amount contributed by each component separately.
The decline in hardware was steeper: revenue fell 14% during the quarter, which Microsoft attributed to a decrease in the number of hardware units sold. The drop highlights a gap between hardware performance and Xbox content and services, which declined at a slower pace. The company's filing did not attribute the hardware decline to any factor other than unit volumes. In the first quarter of fiscal 2026, Xbox hardware revenue had fallen 29% year over year for the same reason, while content and services revenue rose 1%. In that quarter, total gaming revenue declined 2%, with content and services growth partly offsetting the hardware decline. In the fourth quarter of fiscal 2026, Xbox content and services revenue fell 10% year over year, before posting a smaller 2% decline in the quarter ended September 2026.
On the earnings call, Microsoft offered guidance for the second quarter of fiscal 2027 that pointed to an expected improvement in Xbox content and services. The company said it expected year-over-year growth in the "mid-to-high single digits" for the business, with an increase from the previous quarter. It linked the outlook to the timing of first- and third-party content releases during the fiscal year. Microsoft expects the strongest growth in the second quarter, followed by a slowdown in the third quarter and further moderation in the fourth quarter. By contrast, the company expected hardware revenue to decline year over year in the second quarter. The outlook remains tied to the game release schedule the company cited on the earnings call.
On the same call, Chief Executive Satya Nadella said the company was entering the holiday season with a lineup of first- and third-party games that he described as one of the strongest in years. He pointed to the launch of Modern Warfare 4 in the week before the call and said Grand Theft Auto VI would arrive on Xbox the following month. The company cited these releases in discussing content timing, one of the factors underpinning its forecast for Xbox services growth in the second quarter. In trading, Microsoft shares closed at $520.99 on November 3, 2026. The share price alone does not explain the stock's movement or establish a direct link between Xbox revenue and the stock's performance that day.