Last night, Microsoft unveiled its latest earnings release for the period spanning October 1st - December 31st of 2025 (known as FY26 Q2), and unfortunately it didn't make for great reading in terms of Xbox.
Microsoft specifically highlighted the release as showcasing "Cloud and AI Strength" (same as the company did in the previous earnings release), but Xbox content and services revenue was shown as having declined by 5% compared to the same time period in 2024, while hardware revenue had declined by 32%.
In a follow-up conference call last night, Microsoft CFO Amy Hood admitted the Xbox content and services revenue was below expectations, and was seemingly the result of strong first-party performance the year prior.
"In gaming, revenue decreased 9% in constant currency. Xbox content and services revenue decreased 5% in constant currency, and was below expectations driven by first-party content with impact across the platform."
Looking back to October-December 2024, there were definitely some notable first-party Xbox releases at the time — Call of Duty: Black Ops 6, Microsoft Flight Simulator 2024 and Indiana Jones and The Great Circle — and it makes sense that they'll have fared better than Keeper, Ninja Gaiden 4, The Outer Worlds 2 and Call of Duty: Black Ops 7 in 2025.
In terms of the Xbox hardware performance, it wasn't actually mentioned in the conference call aside from a suggestion that it will again "decline year over year" in FY26 Q3. The company believes content revenue will have a small decline as well. Again, keep in mind this is all based around year-on-year results, and not quarter to quarter.
Of course, Xbox doesn't seem all that bothered about hardware performance anyway right now, at least not until the next Xbox console hits the market. Content and services revenue is the key focus from an Xbox perspective in 2026, and a decline of 5% isn't devastating by any means.
Microsoft CEO Satya Nadella actually made a point of mentioning how successful PC and Xbox Cloud Gaming were for Xbox in FY26 Q2, and we'll leave you with his short quote about this down below.
"In gaming, we are committed to delivering great games across Xbox, PC, cloud, and every other device, and we saw record PC players and paid streaming hours on Xbox."