Microsoft’s Xbox hardware revenue has declined for three financial years in a row, and it looks like those declining revenues are going to continue throughout fiscal 2026. Xbox hardware revenue was down 32 percent year-over-year during the recent holiday quarter. Overall gaming revenue was also down 9 percent.
Xbox content and services, which includes Game Pass, is down 5 percent, too. This decline is largely being attributed to stronger first-party content performance in the previous year, and not the Game Pass Ultimate price hike during the quarter. That points towards softer sales numbers for Call of Duty: Black Ops 7, which not only had to go up against Battlefield 6, but also the success of Black Ops 6 in 2024.
Unsurprisingly, Microsoft isn’t giving us an update on Xbox Game Pass subscriber numbers. The company last reported it had 34 million subscribers nearly two years ago, which included Xbox Game Pass Essential (previously Xbox Live Gold / Game Pass Core) members.
The strength of Microsoft’s Intelligent Cloud business, which includes Azure and server products, really shines a bright light on the decline of the More Personal Computing business of Windows, Xbox, and Surface. Intelligent Cloud contributed $32.9 billion in revenue this quarter, more than double the $14.3 billion from More Personal Computing. In fact, the More Personal Computing division declined by 3 percent in revenue year-over-year, the only business unit to do so this quarter.
Microsoft blames that More Personal Computing decline on gaming, and it was offset by search and news advertising revenues growing by 10 percent and Windows OEM growth.
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