Xbox's revenue slide is slowing down, but it hasn't stopped. Microsoft said Xbox revenue fell 2% year over year to $5.38 billion in its fiscal first quarter, ended September 30, a marked improvement from the 10% decline the division posted the previous quarter.
Xbox content and services revenue, the bucket that includes games, subscriptions and third-party sales, also dropped 2%. Microsoft attributed that to weaker third-party game sales and Game Pass revenue, only partly offset by stronger first-party content. The company still hasn't updated its public Game Pass subscriber count, which has sat at 34 million since a disclosure more than two years ago.
Hardware is the bigger problem. Xbox hardware revenue fell 14% year over year, and Microsoft's guidance points to another decline next quarter. Content and services revenue, by contrast, is expected to grow in the mid to high single digits.
Sharma's framing
Xbox CEO Asha Sharma used a post on X to put a positive spin on the numbers, pointing to record results from Mojang's Minecraft and Blizzard's World of Warcraft Forever, and calling Call of Duty: Modern Warfare 4 the franchise's most acclaimed release in more than a decade. She also noted double-digit growth in PC platform revenue and said the division's accountability margin, Microsoft's internal measure of profitability, had already improved.
On the hardware shortfall, Sharma put the blame on supply rather than waning demand. "Console sales remain constrained by supply, with more demand than consoles available," she wrote, adding that Xbox is expanding its refurbishment program to get more consoles into players' hands. Microsoft hasn't detailed what's constraining supply or when it expects the bottleneck to ease.
The quarter lands at an awkward moment for Sharma, who took over Microsoft Gaming in February after Phil Spencer retired, and moved fast, including reviving the Xbox brand name after Spencer's broader rebrand. Satya Nadella's mandate to her is blunt: get the business back to player and revenue growth by the end of fiscal 2027, while improving margins.
Getting there has meant cuts. Microsoft's July restructuring plan called for eliminating up to 3,200 roles across Xbox by the end of the fiscal year, and nearly 1,900 of those positions are already gone, on top of the studio closures the division has worked through over the past year.
The leadership bench is also unsettled. Helen Chiang stepped down as Xbox's first Chief Operating Officer last week after just three months in the role, which had been built to centralize profit-and-loss accountability across content, hardware, platform and services. Her responsibilities are now split among other Xbox executives while Microsoft works out longer-term plans for the position.
Sharma's numbers are real: the decline has narrowed, first-party games are growing, and PC is picking up slack. But Xbox revenue and hardware sales are both still down year over year, and whether that turns into sustained growth depends on fixing the console supply problem and settling the leadership structure before the next earnings report.
GDFiled by The Games Desk
Consoles, handhelds, PC gaming and the platforms and hardware behind them.
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