Dimas Ibnu05/08/2026
3 min read
Xbox content and services revenue fell 10 percent year on year in Microsoft‘s fourth quarter of fiscal 2026, with hardware revenue down 13 percent, marking the third consecutive quarter of decline for both. The results, published on 29 July, also disclose $500 million spent on severance packages as CEO Asha Sharma’s reset of the division continues.
The declines were expected, and Microsoft has already told investors to expect more of the same next quarter.
The Numbers
Xbox finished fiscal year 2026 at $21.790 billion, with full-year Xbox revenue down 5 percent. For the fourth quarter specifically, the content and services drop of 10 percent came against a prior-year comparable that benefited from strong first-party content performance. CFO Amy Hood said segment revenue decreased 10 percent, and 11 percent in constant currency, with gross margin dollars down 2 percent even as gross margin percentage rose thanks to lower amortisation from the Activision acquisition. Operating expenses grew 8 percent, driven by shared R&D investment and impairment charges in Xbox, pushing operating income down 14 percent and operating margins to 21 percent.
The full-year picture in Microsoft’s 10-K filing shows Xbox revenue decreasing $1.7 billion, or 7 percent, with content and services down 5 percent, offset in part by growth in Xbox Game Pass, and hardware revenue down 29 percent on lower console volumes.
The comparison is unflattering by design. In the prior-year period Xbox shipped DOOM: The Dark Ages, Oblivion Remastered, South of Midnight, and put both Indiana Jones and Forza Horizon 5 on PlayStation. This year it put out Kiln and Forza Horizon 6, which is the gap the 10 percent figure is measuring.
None of this dented Microsoft overall: total company revenue rose 31.34 percent year on year to $133.75 billion, with the fiscal year closing on a 27 percent increase in AI revenue.
What Microsoft Says Comes Next
Satya Nadella framed the quarter as deliberate surgery rather than drift. “When it comes to Xbox we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for longterm growth,” he said. “We have the best IP in the industry and talented studios around the world, and believe we can bring these strengths together and return the business to growth in Fiscal 2027.”
Guidance for the first quarter of fiscal 2027 is not a turnaround yet. Hood expects Xbox content and services revenue to decline in the mid-single digits, with hardware revenue also down year over year.
The Reset Behind the Figures
The $500 million severance line is the clearest financial trace of the restructuring. Sharma, who took over the division after Phil Spencer’s retirement and Sarah Bond’s subsequent resignation, and who came to the role from Microsoft’s AI department, recently told staff the state of the Xbox business is not healthy. The reset has seen studios including Double Fine return to independence and thousands of jobs cut, though Microsoft’s overall headcount declined only 2 percent year on year, which puts the scale of the games-division cuts in perspective against the company that owns it.
Asha SharmaearningsGame PassmicrosoftrevenueSatya Nadellaxbox
