Microsoft’s latest earnings are the first official numbers since summer cuts that cost Xbox 3,200 jobs and four studios. They show a division still shrinking, but more slowly. A year ago, the same three months brought Xbox $5.51 billion, and the quarter ending September 30, 2026 came in below that mark.

The more telling number is content and services. Once currency changes are stripped out, that business slipped just 1%, a sharp improvement on the slide in the spring. Pointing to that slower decline, Xbox CEO Asha Sharma said the division’s accountability margin had improved. The result also beat Microsoft’s own forecast, which had called for a decline in the mid single digits.

Game Pass and third-party sales are still slipping

The narrower decline does not mean every part of the business recovered. Lower third-party game sales and lower Game Pass revenue pulled content and services down. Gains in first-party content sales partly made up for them. Sharma said Minecraft and WoW Forever set records. She added that Xbox PC platform revenue grew by double digits.

Console hardware remains the weak spot. Its latest decline came after hardware sales had already fallen 13% and 33% in the prior two quarters, Kotaku reported. Microsoft raised Xbox Series X and S prices in the US on October 3, 2025. A worldwide increase followed on August 1, 2026, inside the quarter just reported.

Spending is also coming down. Operating expenses in Devices and Consumer fell 3%, and Xbox drove the drop. Continued spending on R&D compute capacity and talent partly offset it. Devices and Consumer, which now contains Xbox, brought in $15.5 billion in the quarter. Microsoft as a whole grew far faster, with total revenue up 19% to $92.3 billion and operating income up 21% to $45.9 billion.

For players, the split matters. Xbox is leaning on first-party hits and PC while console hardware and subscriptions shrink. That mix is useful context for anyone watching Xbox’s hardware future and Game Pass pricing.

Microsoft expects Xbox growth to peak over the holidays

The timing of first- and third-party releases is what CFO Amy Hood expects to lift content and services in the holiday period. Hardware is a different story, and Hood expects that revenue to fall again.

Just wrapped our earnings call. It was a fast start to our fiscal year.

Microsoft Cloud revenue surpassed $63B, with growth accelerating to 30% YoY.

Lots of innovation as we build the new tech stack for the agentic wave. A few highlights:

— Satya Nadella (@satyanadella) October 28, 2026

The holiday bump is not expected to last. Microsoft expects Xbox growth to peak in the October–December quarter, slow in January–March and slow further in April–June.

Sources

  • FY27 Q1 – Press Releases – Investor Relations – Microsoft (Microsoft)
  • Xbox's First Report Card Following Its Big 'Reset' Looks A Lot Like All The Others (Kotaku)
  • Xbox Game Pass Ultimate Price Update (Xbox Wire)
  • Xbox content and services revenue decreased 2% in September quarter (GamesBeat)

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