Microsoft’s latest earnings report showed declines across its Xbox business, with content and services revenue falling 10% year over year for the quarter covered by the July 29 report. Xbox hardware revenue also declined, down 13% compared with the same period last year.
Total Xbox gaming revenue reached $4.983 billion for the quarter covering Microsoft’s 2026 fiscal year, making it the division’s weakest quarterly result since the first quarter of FY2024. The previous three quarters produced between $5.34 billion and $5.95 billion in Xbox revenue. Across the full fiscal year, Xbox revenue fell by approximately $1.66 billion, leaving it 5% below the previous year.
Those results stood in contrast to Microsoft’s broader performance, with total company revenue reaching $133.75 billion, a 31.34% year-over-year increase.
Microsoft’s Wider Results Included AI Growth
Microsoft’s earnings materials pointed to a $3.2 billion gain from the company’s investment in Anthropic, the developer of Claude AI. The report also attributed part of the period’s results to lower-than-expected expenses tied to the Voluntary Retirement Program, although those savings were partly offset by severance costs and impairment charges connected to Xbox.
Microsoft executives also highlighted the company’s AI business, which finished the fiscal year with revenue up 27% year over year. Azure revenue surpassed $100 billion for the first time, while Microsoft 365 Copilot reached more than 30 million paid seats, according to Microsoft’s official FY2026 fourth-quarter earnings report.
Xbox’s weaker numbers arrive during a broad period of change for the division under CEO Asha Sharma, who took charge after Phil Spencer’s retirement and Sarah Bond’s resignation.
The combination of lower content and services revenue, falling hardware sales, and a 5% full-year decline gives Microsoft’s gaming division a very different picture from the company’s overall financial performance. The next earnings update should offer a clearer view of whether the Xbox business is beginning to recover.
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