Xbox revenue falls: hardware down 14%, Game Pass dips

Xbox revenue fell again in the first quarter of Microsoft's new fiscal year. Hardware revenue dropped 14% and content and services slipped 2% as Game Pass and third-party sales declined, even as Microsoft's total revenue grew 19%.

Xbox revenue: what the numbers say

On October 28, Microsoft reported results for the quarter ended September 30, 2026, the first quarter of fiscal year 2027. Kotaku notes that it is also the first almost-full quarter since Xbox head Asha Sharma announced what she called the most significant restructure in Xbox history.

According to Insider Gaming, Microsoft blamed the content and services decline on lower third-party content revenue and Xbox Game Pass, with first-party growth partly offsetting it. Kotaku points out that a Game Pass price cut took effect in April, and so far it has not lifted revenue.

A very different picture for Microsoft overall

While Xbox shrank, Microsoft as a whole had a strong quarter. Its press release shows net income up 32% to $36.6 billion and Microsoft Cloud revenue up 30% to $63.9 billion. CFO Amy Hood said results exceeded expectations across revenue, operating income and earnings per share. The headline release does not mention Xbox at all.

Why does hardware keep falling?

The hardware decline is nothing new. Kotaku says Xbox hardware revenue has dropped almost every quarter for years, by 13% last quarter and 33% the quarter before. In its view, higher console prices keep pushing buyers away.

The quarter was also light on major Xbox releases. Kotaku lists a Halo remake and the PS5 ports of Black Ops 1 and 2, which sold 11 million copies on PlayStation but did not move the division's overall numbers much.

Did the layoffs cut costs?

There is one sign of the reset in the report. Operating expenses in the Devices and Consumer segment, which includes Xbox, fell 3%, driven by Xbox. That saving was offset by continued investment in R&D compute capacity and talent.

Kotaku also notes that cost of revenue fell 8%, which Microsoft attributes to lower amortization of intangible assets from the Activision acquisition. Kotaku reports that more than 1,600 jobs have been cut in the restructure, a number expected to reach 3,200 by July next year.

What comes next for Xbox?

Insider Gaming recalls that Microsoft CEO Satya Nadella has said he believes Xbox will return to growth by the end of this fiscal year, which ends on June 30, 2027. The next generation of hardware, codenamed Project Helix, is expected to be a family of devices.

Reports suggest a new Xbox handheld could arrive next year and the next console in 2028, though Microsoft has not confirmed either date. Big releases such as GTA 6 in November could help console sales. As Kotaku puts it, though, layoffs alone do not sell more Xboxes.

For more on Xbox's recent turmoil, read about Microsoft's voluntary exit offer and the collapsed Xbox-Netflix deal. For the subscription library, see our Xbox Game Pass games list.

Frequently asked questions

How much did Xbox hardware revenue fall?

In the first quarter of Microsoft's fiscal year 2027 (July to September 2026), Xbox hardware revenue fell 14% year over year.

Did Game Pass revenue decline?

Yes. Microsoft attributed the 2% drop in Xbox content and services revenue to declines in third-party content and Xbox Game Pass, partly offset by growth in first-party content.

How did Microsoft do overall?

Microsoft's total revenue rose 19% to $92.3 billion, and operating income reached $45.9 billion.

Sources

• Microsoft: FY27 Q1 press release
• Kotaku: Xbox's First Report Card Following Its Big 'Reset'
• Insider Gaming: XBOX Hardware Revenue Falls 14% as Game Pass Declines