Link to the VGChartz article here.

Xbox Revenue Drops 2% YoY, Hardware Revenue Falls 29% Due to Fewer Consoles Sold

Microsoft has released its earnings report for the first quarter of the 2026 fiscal year, which ended up September 30, 2025.

Xbox gaming revenue decreased by $113 million or two percent year-on-year to $5.51 billion. This was driven by a decline in hardware, offset partially by growth in content & service. This is better than the forecast, which expected a decline in the mid to high single digits percent (-4% to -9%).

Xbox content & services revenue increased one percent compared to the same quarter a year ago. This was driven by growth in third-party content and Xbox Game Pass, partially offset by a decline in first-party content. This is better than the forecast, which expected a decline in the mid single digits percent (-4% to -6%).

Xbox hardware revenue dropped 29 percent year-on-year due to a lower volume of consoles sold. There was no forecast given for hardware. Microsoft did increase the price of Xbox consoles in most regions on May 1 and a second time in the US on October 3.

Overall for the quarter, Microsoft reported for the quarter revenue was up 18 percent year-over-year to $77.673 billion, operating income increased 24 percent to $37.961 billion, and net income was up 12 percent to $27.747 billion.

"We expanded our reach across every endpoint, focused on high margin content and services," said Microsoft CEO Satya Nadella. "We launched critically acclaimed games like Keeper, Ninja Gaiden 4, and The Outer Worlds 2. Reaching 155 million monthly active users in Minecraft, an all-time high. And set new record for overall content and services revenue for the quarter.

"We also saw a great response to Xbox Ally launch two weeks ago. And set new records for players on PC."

Microsoft's forecast for the quarter ending December 31, 2025 expects Xbox content & services to decline in the low to mid single digits percent. Xbox hardware is expected to decline.

That's an impressive profit margin for MS overall. No wonder the CFO wants Xbox division to follow suit. Problem though is if these kind of profit margins are reasonable for their gaming division.

It's like Asimov's story, The Foundation, where the empire slowly falls apart.

Where do all the $$$ from Playstation owners fit in?

You should probably read all of the article or op and not just read the heading. 

How does hardware keep dropping ~30% quarter after quarter ?
like at some point, you expect it will stop declining, but it just keeps going.

? it's dropping 29% compared to the same quarter last year. If it drops 29% 4 quarters in a row compared to the year before, it dropped 29% over a full year.

And it will even be worse now.

Hypothetically, it dropping 30% year-on-year could keep continuing until there are 6 and then only 2 units being sold globally.

If we assume Xbox Next will release in Fall 2027, I literally can't imagine how hardware estimates will look like next year, let alone in 2027.

If everything turns out worst case, I think their remaining fiscal year revenues could even drop down to 16-18bn (from this year's record 23.5bn).

The worst case being their price bumps across their portfolios cause even more people to jump off.

Which I think this Q1 report is proof that the worst case scenario is indeed happening at the worst possible rate.

because overall revenue is up?  Ok whatever.  Microsofts next console will be almost like a PC, and leaves consumers ambivalent between that and getting a PC.  With such a choice, many will just opt for a computer instead.  So, long term they will eventually exit even if sales for the next console are OK.  So, don't confuse present with future results because things should only go downhill.  Finally, the intuitions of many in the forum are correct with the large number of negative comments towards the future of the XBOX system.