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Microsoft Reports Declining Gaming Revenue, Xbox Hardware Sales

Microsoft Reports Declining Gaming Revenue, Xbox Hardware Sales

Microsoft Gaming revenue decreased 9 percent, while Xbox content and services revenue fell 5 percent in the second quarter.

Written by Manas Mitul | Updated: 29 January 2026 15:26 IST

Microsoft Reports Declining Gaming Revenue, Xbox Hardware Sales

Photo Credit: Bloomberg

The Xbox decline stood in contrast with Microsoft’s overall business

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Highlights

Xbox content and services revenue was below expectations
Microsoft Gaming revenue decreased 9 percent year-on-year
Xbox decline was driven by a lack of Xbox first-party content

Microsoft reported Wednesday that its Gaming revenue fell 9 percent, while Xbox content and services revenue decreased 5 percent in the second quarter for FY 2026. 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.

Xbox Records Decline in Q2

Xbox content and services revenue was below expectations and fell 5 percent year-on-year, 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.

PS Plus Essential Will Add Four Free Monthly Games in February

The decline is expected to be partially offset by Xbox Game Pass growth, Microsoft said. The Xbox parent also expects hardware revenue to further decline year-over-year in Q3. The company did not report Xbox Game Pass growth for the quarter.

Microsoft Revenue Up by 17 Percent

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 recorded $81.3 billion in revenue — a 17 percent increase year-on-year. The company's 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.

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Further reading: Xbox, Microsoft, Microsoft Earnings, Microsoft Gaming

Manas Mitul

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In his time as a journalist, Manas Mitul has written on a wide spectrum of beats including politics, culture and sports. He enjoys reading, walking around in museums and rewatching films. Talk to Manas about football and tennis, but maybe don’t bring up his video game backlog. More