Xbox posts worst quarter in years with 10% revenue decline

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Xbox is not doing well. On the back of seismic layoffs in its gaming brand, Microsoft reported a 10% decline in Xbox "content and services revenue" in its fourth-quarter report for the 2026 fiscal year, making this the worst quarter for Xbox revenue since the first quarter of FY2024.

Xbox hardware revenue, specifically, was even weaker, falling 13%.

Total Xbox revenue came in at $4.983 billion for the quarter, which is the lowest reported since Q1 2024's $3.919 billion. For comparison, the previous three quarters of FY2026 saw between $5.34 and $5.95 billion.

A double-digit 10% decline into the sub-five range is significant even for Xbox, which regularly reports declines of some sort. For the whole year, Xbox revenue is down about $1.66 billion.

The full report is unsurprisingly AI-heavy, with Xbox only getting a few small mentions. Unsurprisingly, due to all those layoffs, Microsoft reported "severance expense and impairment charges" in Xbox, though it says these were "partially offset by lower-than-expected expenses related to the Voluntary Retirement Program" it announced previously as yet another way to cut employees .

It's alright, though: Microsoft says its $3.2 billion investment from AI company Anthropic is helping out, and its operating income was $40.6 billion for the quarter anyhow. The company's total revenue for the quarter was $90 billion on the dot, the highest in at least several years.

CEO Satya Nadella is not short on praise for AI.

"We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results," says Nadella. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation."

Xbox Game Pass failed to hit subscriber targets because most people don't play lots of games, says analyst, and going indie won't save it: "I don't see a solution."