Microsoft reported a huge jump in profits last quarter, but not in its gaming division. Xbox trailed the tech giant’s other divisions with a double-digit decline in revenue year-over-year. The numbers come in the midst of a strategy reset and ongoing mass layoffs.
Its fourth-quarter earnings report showed a 10-percent drop in content and services year-over-year, followed by a 13 percent drop in Xbox hardware. By contrast, Xbox content and services reported 13-percent quarterly growth year-over-year at this time in 2025.
Things look even worse across the entire year. “XBOX revenue decreased $1.7 billion or 7 percent driven by declines in XBOX content and services and XBOX hardware,” Microsoft reported for the entire fiscal year. “XBOX content and services revenue decreased 5 percent on a prior year comparable that benefited from strong first-party content performance, offset in part by growth in XBOX Game Pass. XBOX hardware revenue decreased 29 percent driven by lower volume of consoles sold.”
Those numbers have precipitated brutal cuts across Xbox, including roughly 1,600 layoffs still to come over the following 12 months. New Xbox CEO Asha Sharma has signaled a shift in how the console maker will invest going forward, cutting off smaller studios that worked on more niche games and focusing on major franchises like The Elder Scrolls and Fallout instead. But the poor financial performance also comes after a particularly bad year for Call of Duty: Black Ops 6. Microsoft paid over $70 billion to acquire Activision Blizzard in 2023, a multi-business-unit publishing operation that dwarfs Xbox’s first-party studios.
Xbox is also suffering from repeated price hikes on its consoles due to an AI hyperscaler race that Microsoft is investing tens of billions in. The standard Xbox Series X is now $750, a 33-percent jump from what it cost at launch back in 2020. The company is currently working on bringing its next-gen Project Helix hardware to market. With Microsoft reportedly still losing money on each new Xbox sold, even at the new higher prices, it’s hard to see how it can start winning back console share in the current landscape, or if it even wants to.