Microsoft reports $113M decline in gaming division revenue

On Oct. 29, 2025, Microsoft published its Q1 fiscal year 2026 financial report, and it revealed that its gaming division’s revenue had contracted compared to last year. Q1 FY25’s gaming revenue was $5.621 billion, while Q1 FY26’s was $5.508 billion, a $113 million deficit.

While it was overall a decline, Microsoft said that Xbox content and services revenue had grown 1%. It added that this is “driven by growth in Xbox Game Pass and third-party content, partially offset by a decline in first-party content.” However, it was quickly and quietly followed by a statement that said Xbox’s hardware revenue had declined by 39%.

Looking forward, Microsoft expects revenue to keep declining. “We expect revenue to decline in the low to mid-single digits against a prior year comparable that benefited from strong first-party performance, partially offset by growth in subscriptions,” Microsoft said in its earnings call. The company also added that it expects hardware revenue to decline year-over-year.

Recently, Microsoft announced that it wants Xbox gaming on all platforms available. CEO Satya Nadella said that he wants Xbox gaming to be similar to Microsoft Office — to be on as many computers as possible — and that he wants to make sure games are enjoyed by gamers everywhere.

Earlier this month, Microsoft hiked its Game Pass prices by 50%, leading to backlash from its users, with some of them responding by canceling their subscriptions.