Microsoft recently reported a drop in Xbox’s revenue for Fiscal Year 2026 Q2, marking a notable shift in their gaming division. Key highlights from the report show:
- A 5% decline in revenue from Xbox content and services compared to Q2 FY25.
- A staggering 32% drop in hardware revenue versus the same period last year.
- Overall gaming revenue fell by 9%.
This is the first time in over a year that Xbox has seen such declines in content and services. One reason for the downturn could be the latest Call of Duty release, “Black Ops 7,” which didn’t live up to the expectations set by last year’s “Black Ops 6.” Industry analysts expected strong sales based on past performance, but the release clearly missed the mark.
Amy Hood, Microsoft’s CFO, indicated back in October that they were anticipating challenges in this quarter. She predicted total revenue would decline by mid to high single digits, primarily due to weaker first-party content.
During the recent Q2 Webcast, Microsoft’s CEO, Satya Nadella, mentioned an increase in record PC players and streaming hours on Xbox, suggesting that while hardware and traditional services may decline, the gaming experience is evolving in other ways.
Amy Hood reiterated that while they expect continued declines in the upcoming quarter, growth might be seen in subscriptions like Xbox Game Pass, which has gained traction among gamers. Despite hardware revenue forecasted to drop, this service could act as a buffer.
Interestingly, according to a recent survey by Statista, 27% of gamers prefer subscription models over traditional game purchases. This trend suggests that even if hardware sales wane, services that provide ongoing content like Game Pass may still find success.
For those interested, you can find the detailed Q2 Webcast [here](https://www.microsoft.com/en-us/Investor/earnings/FY-2026-Q2/press-release-webcast) and the earlier report from Q1 [here](https://xboxera.com/2025/10/29/xbox-hardware-declines-again-content-and-services-up-slightly-for-q1-fy26/).
What are your thoughts on Xbox’s current financial standing? Join the conversation in the XboxEra forums or our Discord community!
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