It was another not-great quarter for Xbox, and that's probably not great news for a division of Microsoft that in the minds of many observers is already up against the wall. But CEO Asha Sharma is having none of that defeatist talk, saying after the company posted its result that she expects Xbox to return to growth by the end of the 2027 fiscal year.
Xbox content and services revenue for the company's fourth quarter were down 10% compared to the previous year, while operating expenses increased by 8%, which chief financial officer Amy Hood said in an earnings call was driven by investments in R&D and impairment charges. Operating income decreased 14%, and operating margins were down by 21%.
The full year picture painted in Microsoft's annual Form 10-K SEC filing isn't any prettier: "Xbox revenue decreased $1.7 billion or 7% driven by declines in Xbox content and services and Xbox hardware. Xbox content and services revenue decreased 5% on a prior year comparable that benefited from strong first-party content performance, offset in part by growth in Xbox Game Pass. Xbox hardware revenue decreased 29% driven by lower volume of consoles sold."
So, simply put, game sales are down, console sales are down, and that's not ideal. Coupled with massive layoffs over the past two years that have left numerous studios gutted or gone, a big shakeup at the top, and a strategy that can't readily be discerned from the outside (beyond 'slash-and-burn'), and it looks especially bleak if your outlook on the future of Xbox is already less-than-optimistic.
Sharma, however, says better times are coming. "In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience," she wrote on X. "We need to close that gap by investing in what players value. That will take time, but we expect to return to growth by the end of FY27."
Microsoft's 2027 fiscal year ends on June 30, 2027—just shy of a year from now. What exactly will be done between now and then to encourage that "return to growth" is anybody's guess, but based on what we've seen over the company's past two fiscal years I wouldn't be surprised to see more cuts and closures between now and then.
Microsoft CEO Satya Nadella also predicted better things for 2027. "When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth," he said during the earnings call. "We have the best IP in the industry, and talented studios around the world, and believe we can bring these strengths together and expect to return the business to growth in fiscal 2027."
While Xbox was down, you don't need to shed any tears of worry for Microsoft. Overall the company took in nearly $332 billion in revenues in its 2026 fiscal, an 18% increase over the previous year, and operating income of more than $155 billion.
