Microsoft Q1 FY2027 Results: Xbox Revenue Falls 2% as Minecraft Reaches All-Time Highs

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Microsoft has reported strong first-quarter results for fiscal year 2027 (Q1 FY2027), exceeding expectations with revenue of $92.3 billion, while Xbox continued to face challenges despite signs of improving performance.

Key Numbers:

For the three months ended September 30, 2026, Microsoft reported:

Revenue: $92.3 billion, up 19% year-on-year
Net income: $36.6 billion, up 32% year-on-year
Devices and Consumer revenue, which includes Xbox: $15.5 billion, down 3% year-on-year

Why Did Xbox Revenue Decline?

Xbox content and services revenue fell 2% compared to the same period last year.

Microsoft said the decline was primarily driven by lower performance from third-party content and Game Pass. However, growth in first-party content helped offset part of the decrease.

The company also reported that hardware revenue dropped 14% year-over-year. At the same time, cost of revenue within the Devices and Consumer segment fell 8%, partly due to lower amortization expenses related to Microsoft's Activision acquisition.

Xbox also contributed to a 3% reduction in operating expenses, although the company noted that continued investments in research, development, compute infrastructure, and talent partially offset those savings.

Minecraft Sets New Records

One of the biggest highlights from Microsoft's earnings report was the performance of Minecraft.

The company revealed that Minecraft achieved "all-time highs in both engagement and revenue" during the quarter. Microsoft did not provide specific player or revenue figures.

Xbox Says Business Is Improving

Xbox CEO Asha Sharma said the gaming division is beginning to regain momentum after a difficult period.

"In Q1, XBOX revenue declined 2% YoY, compared with a 10% decline a quarter ago, while our accountability margin improved," Sharma wrote.

"Minecraft and WoW Forever set records, Call of Duty had its most acclaimed release in more than a decade, and our PC platform revenue grew double digits. Console sales remain constrained by supply, with more demand than consoles available. We’re working to get more consoles into players’ hands, including through our expanded refurbishment program. We’re making progress, with a lot more work ahead."

What Is Microsoft Expecting for Q2?

Microsoft expects Xbox's gaming business to return to growth during the next quarter.

Chief Financial Officer Amy Hood said Xbox content and services revenue is projected to increase by mid- to high-single digits in Q2.

The expected growth will largely be driven by the launch timing of upcoming first-party and third-party content.

Hood noted that gaming growth should be strongest during the second quarter before gradually moderating through the remainder of the fiscal year.

However, hardware revenue is still expected to decline year-over-year in Q2.

Call of Duty and GTA 6 Highlight Microsoft's Holiday Lineup

Microsoft CEO Satya Nadella emphasized the company's commitment to reaching players across all platforms, including console, PC, mobile, and cloud.

The company is entering the holiday season with one of its most significant gaming lineups in years.

According to Nadella, Call of Duty: Modern Warfare 4 recently launched to the strongest critical reception for a Call of Duty title in more than a decade.

Meanwhile, Grand Theft Auto 6 is scheduled to arrive on Xbox next month, giving Microsoft another major release heading into the holiday period.

Recent launches such as Gears of War: E-Day, Minecraft Dungeons 2, and World of Warcraft Forever have also reportedly delivered strong early performances.

At the same time, Xbox's ongoing restructuring efforts have resulted in a workforce reduction of approximately 20%, with additional layoffs expected in November and January.

Xbox employees were also among the Microsoft staff offered voluntary exit packages in several regions, including the United States, United Kingdom, Canada, and India.