Microsoft posted its earnings report for Q2 FY26, which reflected overall growth for the company. However, the Xbox revenue is down by 32% this time, which is not a good look, but that’s not all. The company’s overall gaming revenue and Xbox content & services are also down, prompting many users to question whether Xbox is in trouble.
This article provides a brief overview of the report, explains what may have caused this, and discusses whether Xbox is in trouble.
What led to such a drastic decline in Xbox revenue? Is Xbox in trouble?
According to Microsoft’s latest financial earnings report, Xbox hardware revenue is down by 32%, Xbox content & services is down by 5%, and gaming revenue is also down by 9%. Microsoft cited insufficient momentum from its first-party lineup of games as the culprit behind the massive Xbox revenue drop in the gaming division, but there’s a lot more to it.
Many of Xbox’s decisions in the last few years, such as multiple console price hikes, Game Pass price hikes, massive layoffs and studio closures, widespread game cancellations, pushing major titles to rival platforms like PlayStation, and more, likely contributed to the dip. Moreover, these decisions also eroded general customer trust in the Xbox brand and its consoles.
Moreover, the recent “This is an Xbox” campaign showcased that anything can be an Xbox console and play its games, including a TV, smartphone, tablet, handhelds, and more, via Xbox Cloud Gaming. The company even advertised Chromebook as such a device. That begs the question: If any device can be an Xbox, why should you buy the Series X or Series S? This, along with other decisions made in the past, could be what led to a sharp 32% decline in Xbox hardware revenue.
Overall gaming revenue and Xbox content & services are also down, but they are in single digits and not as massive as the hardware revenue drop. In the financial report, Microsoft expects the Xbox revenue drop to continue in 2026. Some users are even questioning whether the brand is in trouble. The financial report does point to a troubling picture, especially since no next-gen Xbox console release is planned anytime before late 2027 or beyond.
However, Microsoft CFO Amy Hood said in the earnings call that the company expects the Xbox Game Pass revenue to grow in Q3 2026, despite its price hikes. Therefore, it seems not everything is doom and gloom. Moreover, a bunch of new games were announced at the Xbox Developer Direct 26, such as Fable, Forza Horizon 6, Beast of Reincarnation, and more.
They could help rebuild first-party momentum, increase Game Pass engagement with Day 1 launches, and deliver new blockbuster content that could help offset some of the revenue losses, provided they perform well.
Read more: Xbox’s new UI for Cloud Gaming: Everything you need to know
Edited by Abu Amjad Khan
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