Microsoft has reported on yet another dismal financial quarter and year for Xbox, but the company claims things will finally improve in 2027.
It’s hard to remember the last time Microsoft shared a fiscal report and had anything positive to share about how the Xbox division is performing.
Revenue for both Xbox games and consoles has been consistently declining for years and just yesterday it was reported that Microsoft will keep losing money on every Xbox console it sells even after this weekend’s price hike.
Now, Microsoft has shared its results for the final quarter of its 2026 fiscal year and although both Xbox boss Asha Sharma and Microsoft CEO Satya Nadella maintain positive outlooks, things still look grim for Xbox.
The report covers the months of April to June 2026 and, per Microsoft’s data, Xbox revenue is down 10% compared to the same quarter the year before, which is once again vaguely chalked up to ‘strong first party performance.’
As a reminder, Xbox only launched two first party games in the April to June quarter – Double Fine’s flop party game Kiln and racing game Forza Horizon 6, although the latter is still due for a PlayStation 5 launch before the end of 2026 (supposedly, Microsoft hasn’t mentioned the PlayStation 5 version in months).
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When comparing the entire 2026 fiscal year to the 2025 fiscal year, Microsoft admits that Xbox revenue decreased by 7%, which is equivalent to $1.7 billion (about £1.27 billion).
As for Xbox hardware, while there was chatter of sales going up in the UK thanks to Forza Horizon 6’s launch, unsurprisingly, it barely made a difference as overall hardware revenue is down 13% compared to the previous quarter.
For the whole year, hardware revenue declined by 29% ‘driven by lower volume of consoles sold’ and considering the Xbox Series X/S is going up in price, it’s difficult to imagine that ever improving.
Microsoft seems to be banking on its return to exclusives to help drive up console sales again, starting with Gears Of War: E-Day later this year, but its messaging surrounding what is and isn’t a console exclusive has been very confusing and Gears Of War as a franchise is hardly in its prime nowadays.
Last month, it was also reported that numerous Xbox-published games had underperformed and those all saw multiplatform releases, so why Xbox thinks limiting select games to just Xbox and PC will improve things is anyone’s guess.
Both Sharma and Nadella state that they expect the Xbox business will ‘return to growth’ in the 2027 fiscal year, with the former posting the following statement to X:
‘In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience. 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.’
During a conference call with investors, Nadella said, ‘When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long term growth.
‘We have the best IP in the industry, and talented studios around the world, and believe we can bring these strengths together and expect to return the business to growth in fiscal 2027.’
Just to emphasise, Microsoft’s fiscal year ends in June, so what they’re saying is that they think things will turn around in just the next 12 months, after just one Christmas. GTA 6 will be out in that time but the majority of its sales are going to be on PlayStation 5, so they must have some very unreasonable hopes for the Fable reboot in February.
Also, as a reminder, Xbox recently jettisoned several of those ‘talented studios’ and the ones that remained have been greatly impacted by layoffs. Doom studio id Software, in particular, has reportedly been gutted to the point of vandalism, even though Microsoft claims to be eager for more Doom games.
Furthermore, despite saying 3,200 employees would be let go from the company, only half of them were immediately impacted. The other half are set to lose their jobs only sometime before July 2027 and yet are still expected to keep working on new Xbox games.
No exec is going to admit the business is doomed but it’s very hard to see how Microsoft is going to turn things around. Initiatives like new Fallout games, seems far too late to make an impact, considering how long new games take to make, and having them as Xbox console exclusives would be a commerical disaster with so few people actually buying Xbox hardware nowadays.
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