The last couple of months have been grim for Xbox, and to add to its woes, Microsoft's gaming division experienced a massive $1.7 billion decline in revenue last quarter. At the same time, Microsoft reported that profits had increased substantially during the same April to June period, reaching $35.8 billion in profit thanks to its AI and cloud initiatives.
In its fourth-quarter earnings report, Microsoft said that Xbox revenue decreased by 7%--around $1.7 billion--and it attributed the losses to a decline in Xbox hardware, services, and content. Looking specifically at hardware, revenue from this part of the Xbox business decreased by 29%, due to fewer consoles being sold--likely due in part to Xbox consoles increasing in price yet again back in June.
Xbox CEO Asha Sharma addressed the reports while attempting to find a silver lining for the future of Xbox. "In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience," Sharma wrote online. "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."
https://youtu.be/4FatSqS3VYYMicrosoft CEO Satya Nadella also briefly spoke about Xbox during the earnings call, saying that Microsoft expects its gaming division to grow its revenue in the 2027 financial year. Nadella added (via PlayDayOne) that Xbox has "the best IP in the industry" and talented studios working on those projects, key ingredients that should "return the business to growth" soon.
Xbox recently underwent a company-wide "reset" that saw major changes across the board. Mass layoffs hit almost every part of the division, several developers exited the Xbox first-party studio portfolio, and the company is now focused on expanding its biggest IP, like Fallout and Gears of War. Game Pass has also been in the spotlight with reports of it being a gamble that didn't pay off for Xbox, and after two years of day-one launches through the subscription service, Call of Duty is returning to its regular retail model this year with Modern Warfare 4.
While Xbox is playing to its strengths with its games, it's the hardware front where it faces an uphill battle. An Xbox Series X console has increased to $750--it originally launched for $500 in November 2020--and it's likely that the next-gen console, Project Helix, will sell for an even higher price when it hits the market in the future. The vital components needed to make this hardware--like RAM--have surged in price during the AI boom, and analysts are predicting more price increases throughout the rest of the decade.
