Microsoft has released its latest earnings report, and while the company overall posted huge gains for revenue and profit, the Xbox division continued to show downward, negative trends. The tough times at Xbox are expected to continue as well, as Microsoft forecast further declines to come. The Xbox business has been slumping for some time, so this was just the latest quarter of declines for the gaming unit at Microsoft.
Xbox is part of Microsoft’s “More Personal Computing” division, and gaming revenue decreased by $380 million, or 7%. The decline was driven by lower content on Xbox content and services, and hardware results coming in softer. Xbox content and services dipped by 5%, while Xbox hardware revenue slumped by 33% due to fewer consoles sold.
Gross margin for the entire More Personal Computing division increased by 6%, driven by Microsoft’s advertising and gaming businesses, the company said. Additionally, a benefit to selling fewer consoles meant that cost of revenue decreased by 10%, falling to $584 million. That’s not entirely attributable to lower Xbox sales, though, as Microsoft offers a variety of other hardware platforms.
More declines to come
Looking ahead to Q4 (April 1-June 30), Microsoft said the down days for Xbox are expected to continue, with Xbox content and services revenue in the coming quarter expected to “decline in the low teens.” The downturn was attributed to a tough comparison to the same period last year when Microsoft had “strong first-party content.” Arguably the biggest Xbox game released during Q4 2025 for Microsoft was the PS5 release of Forza Horizon 5–and it did huge numbers.
This year, Microsoft has Forza Horizon 6 coming during the company’s Q4, as it’s slated to release on May 19. It’s only confirmed for release on PC and Xbox Series X|S that day, with a release on PS5 to follow later in the year.
Microsoft said the expected downturn for Xbox in Q4 is also attributable to the price cut for Game Pass, as well as further declines in Xbox console sales.
“Win back fans”
It wasn’t all bad news for Xbox during the period, though, as Microsoft CEO Satya Nadella said Xbox set “new records” for monthly Xbox users during the latest quarter, while the total number of “game streaming hours” hit record levels, he said.
Nadella said the company is currently trying to “win back fans” on Xbox, and he cited Xbox CEO Asha Sharma’s recent decision to cut Game Pass prices as an example of this.
For her part, Sharma released a statement in which she said Xbox has “made progress expanding the business and margins,” but revenue and player growth “has not yet met our ambition.”
“We know we have work to do to earn every player today and into the future,” she said.
Looking at the company in its entirety, Microsoft made $82.9 billion in revenue (up 18% year over year) and a profit of $31.8 billion (up 20%) for the quarter that ended on March 31.