Microsoft CEO Satya Nadella said the company expects Xbox to return to growth in fiscal 2027, even as the gaming division faces a difficult financial period and mass layoffs.
The comments came during Microsoft’s fiscal 2026 fourth-quarter earnings call. The results showed Xbox had its weakest quarter for profits in years, adding more pressure to a gaming business that is also dealing with plans to cut 3,200 Xbox jobs.
Microsoft’s results showed Xbox content and services revenue fell 10% year over year in the quarter ending June 30, 2026, while hardware revenue fell 13%. The declines continued a difficult fiscal year: content and services revenue fell 5% in both the second and third quarters, while hardware revenue dropped 32% and 33%, respectively. In the first quarter, content and services revenue grew 1%, but hardware revenue still decreased by 29%.
Nadella said Microsoft was taking steps across its content portfolio, platform, and operations to reset Xbox for long-term growth. He argued that the division still has major assets to build on, pointing to what he called “the best IP in the industry” and “talented studios around the world.”
“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,” Nadella said.
Microsoft is betting on Xbox’s existing franchises
Nadella did not name the specific franchises he believes will help drive that recovery. Microsoft’s portfolio includes Bethesda RPG series such as The Elder Scrolls, along with major Xbox properties including Gears of War.
Gears of War: E-Day is one of the company’s upcoming first-party releases, with The Coalition’s prequel scheduled to launch on October 6, 2026, for Xbox Series X|S and PC. Microsoft also owns studios and properties across a wide range of genres, giving the company several possible paths for expanding Xbox software and services.
Xbox head Asha Sharma has also described the current period as a reset for the brand. More than 200 million new players came to Xbox and its games during fiscal 2026, Sharma said in comments reported by Video Games Chronicle, but the business did not grow with that audience. She said closing that gap would take time, with Xbox expected to return to growth by the end of fiscal 2027, which falls on June 30, 2027.
That reset now comes alongside reductions in staff and changes across the gaming organization. Microsoft cut 1,600 jobs earlier in July and plans to make another 1,600 layoffs during fiscal 2027, bringing the planned total to 3,200. Compulsion Games and Double Fine Productions have also become independent again, while Ninja Theory and Undead Labs entered terms to join new owners.
Nadella also expressed confidence in Microsoft’s wider business during the earnings call, mentioning Windows, Bing, Edge, and the company’s plans for artificial intelligence. For Xbox, though, the next several financial reports will show whether its studio lineup and platform strategy can reverse the recent decline.
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