Xbox Revenue Drops 2% YoY, Hardware Revenue Falls 29% Due to Fewer Consoles Sold - Sales
by William D'Angelo , posted on 29 October 2025 / 8,630 Views
Microsoft has released its earnings report for the first quarter of the 2026 fiscal year, which ended up September 30, 2025.
Xbox gaming revenue decreased by $113 million or two percent year-on-year to $5.51 billion. This was driven by a decline in hardware, offset partially by growth in content & service. This is better than the forecast, which expected a decline in the mid to high single digits percent (-4% to -9%).
Xbox content & services revenue increased one percent compared to the same quarter a year ago. This was driven by growth in third-party content and Xbox Game Pass, partially offset by a decline in first-party content. This is better than the forecast, which expected a decline in the mid single digits percent (-4% to -6%).
Xbox hardware revenue dropped 29 percent year-on-year due to a lower volume of consoles sold. There was no forecast given for hardware. Microsoft did increase the price of Xbox consoles in most regions on May 1 and a second time in the US on October 3.
Overall for the quarter, Microsoft reported for the quarter revenue was up 18 percent year-over-year to $77.673 billion, operating income increased 24 percent to $37.961 billion, and net income was up 12 percent to $27.747 billion.
"We expanded our reach across every endpoint, focused on high margin content and services," said Microsoft CEO Satya Nadella. "We launched critically acclaimed games like Keeper, Ninja Gaiden 4, and The Outer Worlds 2. Reaching 155 million monthly active users in Minecraft, an all-time high. And set new record for overall content and services revenue for the quarter.
"We also saw a great response to Xbox Ally launch two weeks ago. And set new records for players on PC."
Microsoft's forecast for the quarter ending December 31, 2025 expects Xbox content & services to decline in the low to mid single digits percent. Xbox hardware is expected to decline.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012 and taking over the hardware estimates in 2017. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel. You can follow the author on Bluesky.
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MS have given up on hardware pretty much.
Xbox Series probably are at 28 million right now.
The AMD >100m figure is in no way precise enough to determine this.
All the figure tells is that AMD surpassed the 100m mark for next-gen console chip shipments at some point during Q4 2024. Without knowing an exact date that still gives a massive range for Xbox.
PS5 shipments at the beginning of the quarter were 65.5m and 75m at the end. Meaning depending on when the 100m was surpassed, going by the amd figure alone, Xbox could be anywhere from 25m to 34.5m as of that time.
We also don't know the gap between AMD counting a shipment of the chip, and Sony counting a shipment of the ps5.
For people that want concrete evidence and accuracy the AMD figure is pretty useless....
These are estimates. And so at least debatable.
Since Xbox' hardware revenue does include other hardware's revenue, too (controller, headsets, etc.), there are at least some credible suggestions out there that assume that VGChartz estimates for X|S are overtracked.
And if you're inclined to have some trust in the word of KeplerL2, then his indication of X|S sell-in numbers were around ~22-24m, up until December 2024.
And frankly, I personally think that even official data from only AMD alone (in addition with official data from Sony) can support the math that X|S sell-in can't sit at 33m as of September 2025.
But likely at 25m. (I personally think they are even worse than that.)
I did expect that.
Total Xbox gaming revenue being down 2% (Q1 vs Q1, year-on-year) now was the point of stalling/declining.
Which is pretty significant I think, considering the two-phased price hike of GP in July 2024 and September 2024 (by 15-20% cumulative).
And Playstation contributing frequent software revenue to Xbox after October 1st, 2024, specifically and quite possibly, in this Q1, more than in last year's Q1.
(Of course, clever as they are, Xbox bumped GP prices by between 70-110% cumulative again recently, starting October 1st, 2025, in attempt to tackle further declines in future reports at least from that direction, too.)
I think the broader picture is that D1 GP, Play Anywhere, sacrifices in software revenue and declining hardware was eating away a lot of their margins up until end of this Q1.
And it shows.
Their recent price adjustments in hardware, software and again in GP are to be seen what effect they'll have.
This Q1 report could at least suggest the math that, year-on-year, they could have lost some GP subscriptions already.
Because -29% in hardware, while being a steep drop again, should be a smaller loss now in revenue compared to the content's & service's price bumps, and Playstation's revenue they didn't have in last year's Q1.
Ofc, I could be wrong, since Xbox deeper numbers are always guessing, but that's the picture I am seeing out of this report.
Did they reach their accountability margin?
Man down 2%? Can you imagine spending roughly 90 billion on this division and still end up with your revenue declining. I can see why they are making such drastic changes things are clearly not working for them over there.
The most expensive failed investment in history?
AOL Time Warner?
Maybe as a singular investment that beats MS ABK, but overall investment into Xbox over the years has been way higher than that.
You know that Q1 2025 numbers already included the ABK numbers as well, right? It's not like "they bought ABK and those numbers included still couldn't increase the revenue". That big increase happened starting Q2 2024 and Xbox revenue numbers are much higher now as before the ABK acquisition.
I don't know really understand the point you're trying to make.
He's saying that revenue has only dropped after the big boost it had to adding ABK revenue to the Xbox division. Revenue is still massively up compared to before the ABK acquisition.
Another interesting consideration:
Cumulative, hardware prices (consoles+peripherials) rose by 20-22% starting May 1st, 2025 globally.
And hardware is down -29% year-on-year.
It's at least mathematically assumable that, if hardware unit sales would have stayed flat, hardware revenue would have risen by 20% (since it's Q1 vs Q1, and no overlapping like subscriptions).
Which means that hardware unit sales weren't only dropping (as expected), but even dropping ~5% more than estimated.
Yes, potentially the decline in console unit sales could be as much as 40%, with revenue down 29%. Due to the increase in console price.
I guess raising prices and putting their games on Playstation is not working that well; maybe they should try increasing their prices just a bit more and porting all of their games to Switch, and MACs.
The same hardware drop as they had last Q1. So basically this 2025 quarter is a 49.6% drop compared to 2023. A huge fall off. Especially considering the Xbox had received a price rise, so the drop in units sold should be greater than 49.6%.
So arround 500k of X/S for this quarter
i still cant believe this is not only happening but now has happened
All that really matters to MS is the profit. I guess their goal is to achieve record profits leave the hardware revenue to other companies.
