Xbox Revenue Declines 10 Percent, but Microsoft CEO Expects Gaming Division to Return to Growth by End of FY27

Microsoft reported declining Xbox revenue for yet another quarter even as the company's Cloud and AI businesses drove overall growth. Xbox content and services revenue decreased 10 percent year-on-year, the company confirmed Wednesday during its fourth-quarter earnings call for the fiscal year 2026. Microsoft CEO Satya Nadella and Xbox chief Asha Sharma said Xbox expects to return to growth by the end of fiscal year 2027.

While Microsoft Cloud revenue totalled $59.3 billion in Q4 FY2026, up 27 percent year-on-year, its gaming division continued to falter. The company's More Personal Computing business, which includes Windows hardware and Xbox, recorded $12.9 billion in revenue, a 4 percent YoY decrease.

Windows OEM and Devices revenue decreased 7 percent while Xbox content and services revenue fell 10 percent year-on-year.

Xbox Expected to Return to Growth by 2027

During the earnings call, Nadella underlined Xbox's need to reset its business and return to growth by the end of FY2027 and said the gaming division had the “best IP in the industry.”

“When it comes to XBOX, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth,” the Microsoft chief said. “We have the best IP in the industry, and talented studios around the world, and believe we can bring these strengths together and expect to return the business to growth in fiscal 2027.”

Microsoft CFO Amy Hood said Xbox revenue in the quarter declined compared to the same period last year, which benefited from strong first-party content performance.

“Segment gross margin dollars decreased 2 percent and gross margin percentage increased year-over-year driven by lower amortization from the Activision acquisition. Operating expenses increased 8 percent and 7 percent in constant currency driven by the continued investments in shared R&D noted earlier as well as impairment charges in XBOX. Operating income decreased 14 percent and 15 percent in constant currency and operating margins decreased year-over-year to 21 percent,” Hood reported.

Sharing Microsoft's FY2027 outlook, Hood said Xbox content and services revenue was expected to decline in the mid-single digits. Hardware revenue was expected decline year-over-year, as well.

Xbox CEO Asha Sharma, who announced a major business reset plan for the gaming division earlier this month, said on X that Microsoft expects Xbox to return to growth by the end of FY2027.

“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,” Sharma said.

Earlier this month, Sharma announced Xbox was laying off 3,200 employees and divesting five of its studios, including Dishonored maker Arkane and Hellblade maker Ninja Theory. The Xbox boss said it was “the most significant restructure” in the company's history after bets on Game Pass and multi-platform releases did not grow at expected pace.