Xbox Revenue Drops 9% in Holiday 2025 Quarter, Hardware Revenue Falls 31% - Sales
by William D'Angelo , posted on 28 January 2026 / 7,269 Views
Microsoft has released its earnings report for the second quarter of the 2026 fiscal year, which ended up December 31, 2025.
Xbox gaming revenue decreased by $623 million or nine percent year-on-year. This was driven by declines in Xbox hardware and Xbox content & services.
Xbox content & services revenue decreased five percent compared to the same quarter a year ago. This is inline with the forecast, which expected a decline in the low to mid single digits percent (-1% to -6%). Microsoft stated the prior year "benefited from strong first-party content performance."
Xbox hardware revenue dropped 32 percent year-on-year due to a lower number of consoles sold. This is inline with the forecast, which was for a decline. Microsoft did increase the price of Xbox consoles in most regions on May 1, 2025 and a second time in the US on October 3, 2025.
Overall for the quarter, Microsoft reported for the quarter revenue was up 17 percent year-over-year to $81.3 billion, operating income increased 21 percent to $38.3 billion, and net income on a GAAP basis was up 60 percent to $38.5 billion.
"We are committed to delivering great games across Xbox, PC, cloud, and every other device," said Microsoft CEO Satya Nadella. "And we saw record PC players and paid streaming hours on Xbox."
Microsoft's forecast for the quarter ending March 31, 2026 expects Xbox content & services to decline in the mid single digits percent (-4% to -6%) against a prior year that benefitted from strong content performance partially offset by growth in Xbox Game Pass. 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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Luckily their goal is to fail. So they are in fact succeeding.
DAMN!!!!!!!!!!!!!!!!
FY2021Q2 : 86%
FY2021Q3 : 232%
FY2021Q4 : 172%
FY2022Q1 : 166%
FY2022Q2 : 4%
FY2022Q3 : 14%
FY2022Q4 : -11%
FY2023Q1 : 13%
FY2023Q2 : -13%
FY2023Q3 : -30%
FY2023Q4 : -13%
FY2024Q1 : -7%
FY2024Q2 : 3%
FY2024Q3 : -31%
FY2024Q4 : -42%
FY2025Q1 : -29%
FY2025Q2 : -29%
FY2025Q3 : -6%
FY2025Q4 : -22%
FY2026Q1 : -29%
FY2026Q2 : -32%
Worth keeping in mind: This is YoY percentage drops. (I have seen many on ResetEra interpret this as quarterly drops… so just want to clarify lol.)
They compound every aligned quarter; e.g. Xbox didn’t see an 63% drop in hardware sales in FY2025, but rather, around a 20% drop
CoD was probably responsible for the content and services drop.
Most likely yeah with how much Black Ops 7 is down compared to Black Ops 6.
-29% in hardware last year, -31% this year, which equals roughly -50% over the span of 24 months. Content & services down, overall revenue down.
And all of that despite price hikes, layoffs, Call of Duty and various Playstation releases.
Their quarter reports until the Xbox Next will be nothing but gruesome.
They wanted to be more consistent. They're still failing so they are consistent!
Have you been following Microsoft stock?
Looks like porting their games to Playstation is not enough; maybe they should try porting them to IOS and Android too. Oh! and maybe they should increasing their prices a bit more too; I mean, I was told that this is a good way too improve your revenue when people are already not buying your products.
I get the feeling they're on their way out, and are trying to just soften the blow in some way. Valve is looking to snipe their spot among the big three, we'll see if that ends up being the case.
You know what surly would help? Another price hike!
Sadly I feel like more insane levels of layoffs are about to happen.
Yep. There's no way they're going to let the Xbox division keep dragging them down so they're just going to cut off as much as possible.
Did they achieve their accountability margin?
I notice it doesn’t seem to say Xbox’s profit margin. In theory you can have a higher profit in lower revenue but usually turns out to be a short-term measure.
Suspect it will be hear, as with fewer people buying their console, there’s less people buying through the Xbox store or Gamepass. They’ll see a boon from pushing their titles to PlayStation, which will accelerate a transition to third-party status.
