Microsoft’s Xbox business brought in $5.38 billion in the July-September quarter, down 2% from $5.51 billion a year earlier, according to the Form 10-Q Microsoft filed on October 28. Xbox hardware revenue fell 14% on lower console sales, and content and services slipped 2% as Game Pass and third-party game sales declined, partly offset by growth in Microsoft’s own games.
Updated October 29, 2026: Added Xbox CEO Asha Sharma’s comments on console supply (see What Xbox’s CEO said).
These Xbox earnings cover Microsoft’s first quarter of fiscal year 2027, which ended September 30, 2026. The company as a whole had a strong quarter: revenue rose 19% to $92.3 billion, driven by Azure and its cloud business.
First-party games were the one growing part of Xbox content and services in the quarter; Nadella said Minecraft had a record quarter. Image: Microsoft
Table of Contents
Xbox earnings Q1 FY27 at a glance
| Metric (July-Sept 2026) | Result | Year-over-year |
|---|---|---|
| XBOX revenue | $5,379 million (vs $5,508 million) | -2% (-$129 million) |
| XBOX content and services | Not given in dollars | -2% (-1% in constant currency) |
| XBOX hardware | Not given in dollars | -14% |
| Devices and Consumer segment | $15,484 million (vs $16,001 million) | -3% |
| Microsoft total revenue | $92,279 million (vs $77,673 million) | +19% |
Source: Microsoft 10-Q and earnings release, October 28, 2026. Prior-year figures are Microsoft’s recast numbers for July-September 2025.
Why Xbox revenue fell: Game Pass, third-party games and consoles
Microsoft’s filing gives three reasons. Content and services revenue went down “driven by declines in third-party content and XBOX Game Pass, offset in part by growth in first-party content.” Hardware revenue declined 14% “driven by lower volume of consoles sold.” Microsoft did not publish a Game Pass subscriber number or a hardware revenue figure in dollars.
The Game Pass line matters for players because the service is changing fast. Microsoft now sells Xbox Cloud Gaming without a Game Pass subscription, starting at $3.99 for 10 hours, and T-Mobile has announced phone plans that include Game Pass.
What Xbox’s CEO said
In a post on X late on October 28, Xbox CEO Asha Sharma wrote: “Console sales remain constrained by supply, with more demand than consoles available.” She added that Xbox is “working to get more consoles into players’ hands, including through our expanded refurbishment program.” Sharma also pointed out that the 2% revenue decline compared with “a 10% decline a quarter ago” and said “our PC platform revenue grew double digits.” Microsoft gave no console unit figures, and its filing did not put a dollar amount on hardware revenue.
A new name in Microsoft’s results: XBOX, not Gaming
This is the first quarter under the segment changes Microsoft announced in September 2026. Xbox now sits inside a Devices and Consumer segment alongside Bing, LinkedIn advertising, Windows OEM licences and Surface, and the revenue line is labelled “XBOX” rather than “Gaming.” Microsoft recast the prior-year figures to match, which is why the comparison is $5,379 million against $5,508 million.
The Devices and Consumer segment’s operating income rose 2% to $5.36 billion. The 10-Q credits lower amortization of intangible assets from the Activision Blizzard acquisition, and says segment operating expenses fell 3% “driven by XBOX.”
Xbox hardware revenue fell 14% on lower console sales, and Microsoft expects another year-over-year decline in October-December. Image: Microsoft
What Nadella and Hood said about Xbox
On the earnings call, CEO Satya Nadella said “Minecraft delivered a record quarter, reaching all-time highs in both engagement and revenue,” and that World of Warcraft had its largest beta in franchise history. He said Xbox enters the holiday season with “one of our strongest first and third-party line ups in years,” naming Modern Warfare 4 and Grand Theft Auto VI, which he said is “coming to XBOX next month.” GTA 6 is due on November 19 (see our GTA 6 release times and pre-load guide). Separately, Xbox CEO Asha Sharma said on October 26 that the series has passed $40 billion in lifetime revenue.
The quarter came in better than Microsoft’s own forecast. In July, CFO Amy Hood had guided for Xbox content and services revenue “to decline in the mid-single digits,” and the result was a 2% drop. That quarter, April-June 2026, Xbox revenue had fallen 10%, and Nadella said Microsoft expects “to return the business to growth in fiscal 2027,” according to the July 29 call transcript.
Xbox outlook for October-December 2026
- Content and services: Hood expects revenue growth “in the mid to high-single digits,” driven by the timing of first- and third-party game launches. She said growth should be strongest this quarter, then slow in Q3 and Q4.
- Hardware: “Hardware revenue in Q2 should decline year-over-year.”
- Devices and Consumer: $15.9 billion to $16.4 billion in revenue.
- Costs: Hood said Microsoft’s cost guidance “includes an estimate for the recently announced employee voluntary exit offer.” That offer reportedly includes Xbox staff.
How outlets read the numbers
Insider Gaming led with the 14% hardware drop and the Game Pass decline, and tied the results to the reset under Sharma, which has included job losses and studio changes. GamesIndustry.biz focused on first-party content offsetting the declines and on Minecraft’s record quarter. The leadership changes go on: Xbox’s first COO, Helen Chiang, left after three months.
What’s next
The October-December quarter is the real test of Hood’s forecast, with Modern Warfare 4 and GTA 6 both landing in it. Microsoft has not yet announced the date of its fiscal second-quarter results. Console hardware is still forecast to shrink, so any recovery will have to come from games and services. On the hardware side, the next big question is the next-generation Xbox, which Fortune reported could cost $1,200 to $1,800, a figure Microsoft has not confirmed.
Sources: Microsoft Form 10-Q for the quarter ended September 30, 2026 (SEC); Microsoft earnings release, October 28, 2026 (SEC); Microsoft FY27 Q1 earnings call (Investor Relations); Microsoft FY26 Q4 earnings call, July 29, 2026; Insider Gaming; GamesIndustry.biz.
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Featured image: Microsoft
