Xbox just had its worst quarter in years
Xbox is not doing well. On the back of seismic layoffs in its gaming brand, Microsoft reported a 10% decline in Xbox “content and services revenue” in its fourth-quarter report for the 2026 fiscal year, making this the worst quarter for Xbox revenue since the first quarter of FY2024.
Xbox hardware revenue, specifically, was even weaker, falling 13%.
Total Xbox revenue came in at $4.983 billion for the quarter, which is the lowest reported since Q1 2024’s $3.919 billion. For comparison, the previous three quarters of FY2026 saw between $5.34 and $5.95 billion.
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A double-digit 10% decline into the sub-five range is significant even for Xbox, which regularly reports declines of some sort. For the whole year, Xbox revenue is down about $1.66 billion.
The full report is unsurprisingly AI-heavy, with Xbox only getting a few small mentions. Unsurprisingly, due to all those layoffs, Microsoft reported “severance expense and impairment charges” in Xbox, though it says these were “partially offset by lower-than-expected expenses related to the Voluntary Retirement Program” it announced previously as yet another way to cut employees.
It’s alright, though: Microsoft says its $3.2 billion investment from AI company Anthropic is helping out, and its operating income was $40.6 billion for the quarter anyhow. The company’s total revenue for the quarter was $90 billion on the dot, the highest in at least several years.
CEO Satya Nadella is not short on praise for AI.
“We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results,” says Nadella. “This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation.”
