Xbox Revenue Declines As Microsoft Reports FY26 Q2 Earnings

Microsoft had another big quarter on paper. Xbox, however, did not.

In its second quarter fiscal year 2026 (FY26 Q2) earnings report, Microsoft announced a 17% year-over-over jump in revenue to $81.3 billion, with growth once again driven by cloud and AI. Microsoft Cloud revenue hit $51.5 billion, Azure jumped 39%, and most of the company’s major business lines continued to trend in the right direction.

Xbox was the clear exception.

Xbox Revenue Fell Across The Board

Within Microsoft’s report, the company said that its gaming revenue has fallen 9% while Xbox content and services revenue fell 5% year over year. Microsoft didn’t disclose specifics on the Xbox content regarding the revenue for services like Xbox Game Pass, but did say that the decline can be attributed to last year benefiting from “strong first-party content performance”. Still, the slowdown is hard to overlook as Xbox content growth continues to cool, at least for the time being.

Hardware was an even bigger concern.

Microsoft confirmed that Xbox hardware revenue dropped 32% during the quarter. As usual, the company did not provide console sales numbers or much added context, but the direction is clear. Xbox console sales continue to slide, even as Microsoft positions the brand as more of a service-driven ecosystem than a traditional hardware platform.

Recent quarterly data shows how quickly things have changed. Xbox content and services revenue posted strong gains throughout much of FY25, including multiple quarters of double-digit growth. That momentum has now faded, with FY26 Q2 marking a shift into negative territory.

Despite the Xbox decline for the quarter, other parts of the earnings helped soften the impact. Windows OEM and Devices revenue grew 1%, while search and news advertising rose 10%, underlining just how much Xbox is lagging behind Microsoft’s other consumer-facing businesses.

For Microsoft, the overall earnings picture remains strong. For Xbox, the concerns are piling up. With hardware revenue falling sharply as the Xbox Series X|S ages out and content growth seemingly slowing, Microsoft’s long-term plan for the platform is becoming a bit murkier.

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