Xbox Revenue Falls Again, CEO Promises Return to Growth by FY27

Credit: Xbox / Asha Shrama

Xbox revenue fell across the board in Microsoft's latest quarterly report, with hardware sales taking the biggest hit. The tech giant's fiscal year 2026 fourth quarter results, covering April 1 to June 30, 2026, show content and services revenue down 10%, while hardware revenue dropped 13% compared to the same period last year. It caps off a rough year for the gaming division, even as Microsoft as a whole posted record numbers.

Let's break down what actually happened, because there's a lot going on here.

Microsoft's Overall Numbers Are Still Strong

While Xbox struggled, Microsoft's broader business had a great quarter. The company's Cloud and AI segments carried most of the weight, and the numbers reflect that clearly.

Here's what the company reported for Q4 FY2026:

• Revenue: $90 billion, up 18% year over year

• Net income: $35.8 billion, up 31% year over year

• More Personal Computing (which includes Xbox): $12.9 billion, down 4% year over year

• Microsoft Cloud revenue: $59.3 billion, up 27% year over year

• Intelligent Cloud services: $39.3 billion, up 32%

• Productivity and Business Processes: $37.8 billion, up 14%

For the full fiscal year, Microsoft brought in $331.8 billion in total revenue, an 18% jump. Operating income rose 21% to $155.2 billion, and net income climbed 22% to $133.7 billion. Not bad at all for the company overall. Xbox, though, is a different story.

Xbox Just Had Its Worst Quarter In Years

Total Xbox revenue for the quarter landed at $4.983 billion. That's the lowest since Q1 2024, when Xbox pulled in $3.919 billion. The previous three quarters of FY2026 had all stayed between $5.34 and $5.95 billion, so this drop stands out even by Xbox's usual standards of inconsistency.

For the full fiscal year, Xbox revenue is down roughly $1.66 billion. That decline didn't happen overnight either. According to earlier quarterly reports, Xbox has been bleeding revenue for a while now:

• Q1 FY2026: content and services up 1%, hardware down 29%

• Q2 FY2026: content and services down 5%, hardware down 32%

• Q3 FY2026: content and services down 5%, hardware down 33%

• Q4 FY2026: content and services down 10%, hardware down 13%

Microsoft pointed out that the same quarter last year had "benefited from strong first-party content performance," which makes this year's comparison look even worse. Hardware revenue is expected to keep falling too, according to the company's own outlook.

Layoffs And Studio Shakeups Hit Hard

All of this financial pressure led to some serious changes within the Xbox division. Earlier this month, Microsoft confirmed layoffs affecting 4,800 roles company-wide, a 2.1% cut to its global workforce. Xbox alone lost 1,600 positions, with another 1,600 expected to go throughout FY27, bringing the total to 3,200 cuts.

Four studios also got restructured. Double Fine Productions and Compulsion Games are now fully independent, while Undead Labs and Ninja Theory have entered talks for new ownership. Arkane Lyon, meanwhile, began consultation on what the company is calling "potential strategic options," which doesn't sound great for its future.

Double Fine already felt the effects of going independent, cutting 23 roles just a day after separating from Xbox completely.

Microsoft's chief people officer Amy Coleman explained the reasoning behind the shakeup:

"Our business is changing because the world around it is changing. The way technology is built, deployed, and used is transforming faster than at any point in my time here. Our customers' needs are shifting, the business models that serve them are shifting, and that means the work itself, what we do, where we focus, and how we're organised, has to transform too."

What Comes Next For Xbox?

Despite the rough quarter, Xbox CEO Asha Sharma insists the division isn't giving up. She's laid out four core priorities for FY27, often referred to as the "Four Cs": Core, Content, Creation, and Connection. The idea is to strengthen the console platform, grow existing franchises into bigger global brands, turn Minecraft into a leading creator platform, and expand connections with fans.

Sharma also revealed something interesting in an internal memo obtained by The Verge. Three Xbox franchises generate more than a billion dollars in annual revenue each, though she didn't name them directly. Speculation points toward Minecraft, Call of Duty, and Candy Crush as the likely candidates, given their scale and consistent performance.

Sharma addressed the growth issue directly on social media, saying:

"In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience. We need to close that gap by investing in what players value. That will take time, but we expect to return to growth by the end of FY27."

Nadella echoed similar sentiments during Microsoft's earnings call, stating that the company is "making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth."

Whether Xbox can actually pull off this turnaround remains to be seen. Upcoming releases like Gears of War: E-Day could help, but with rising console prices and a shrinking internal studio lineup, the road back to growth looks like it'll take some real work.