Microsoft has released its earnings report for the first quarter of the 2026 fiscal year, which ended on September 30, 2025.
**Xbox Gaming Revenue Decline**
Xbox gaming revenue decreased by $113 million, or 2% year-on-year, to $5.51 billion. This decline was primarily driven by a drop in hardware sales, partially offset by growth in content and services. Despite the decrease, the results were better than forecasted, which had predicted a decline in the mid to high single digits (-4% to -9%).
**Content & Services Growth**
Xbox content and services revenue increased by 1% compared to the same quarter last year. This growth was fueled by an increase in third-party content and Xbox Game Pass subscriptions, partially offset by a decline in first-party content revenue. Again, this outperformed expectations, as analysts had forecasted a decline in the mid single digits (-4% to -6%).
**Hardware Revenue Drop**
Xbox hardware revenue fell sharply by 29% year-on-year due to a lower volume of consoles sold. While no specific forecast was provided for hardware, it’s important to note that Microsoft increased the price of Xbox consoles in most regions on May 1, and implemented a second price increase in the US on October 3, which may have impacted sales volume.
**Overall Microsoft Financial Performance**
For the quarter, Microsoft reported strong overall financial results:
– Revenue rose 18% year-over-year, reaching $77.673 billion.
– Operating income increased 24% to $37.961 billion.
– Net income grew 12% to $27.747 billion.
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**About the Author**
William D’Angelo is a lifelong and avid gamer who was first introduced to VGChartz in 2007. After years of supporting the site, he joined as a junior analyst in 2010, progressed to lead analyst in 2012, and took over hardware estimates in 2017. William has expanded his involvement in the gaming community by producing content on his own YouTube and Twitch channels.
You can follow William D’Angelo on Bluesky.
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*Full article available at:* [VGChartz – Xbox revenue drops 2% YoY, hardware revenue falls 29% due to fewer consoles sold](https://www.vgchartz.com/article/466133/xbox-revenue-drops-2-yoy-hardware-revenue-falls-29-due-to-fewer-consoles-sold/)
https://www.vgchartz.com/article/466133/xbox-revenue-drops-2-yoy-hardware-revenue-falls-29-due-to-fewer-consoles-sold/
