Following the big Xbox reset enacted by division Chief Executive Officer Asha Sharma , which laid off 1,600 employees (with another 1,600 jobs to be cut later ), there was a lot of curiosity about Microsoft 's quarterly earnings report.
Unsurprisingly, while Microsoft as a whole beat forecasts and recorded its strongest year yet, with revenue rising 18% to more than $331 billion and operating income increasing 21% to more than $155 billion , Xbox's decline continued.
Chief Financial Officer Amy Hood informed investors that Xbox revenue fell by 10%, with a 11% decline when adjusted for constant currency. Revenue from Xbox content and services also dropped by 10% compared to the previous year , which had benefited from strong first-party content performance (including the launch of DOOM: The Dark Ages and ports such as the massively successful PS5 version of Forza Horizon 5 ). The segment's gross margin dollars decreased by 2%, while the gross margin percentage improved year-over-year, driven by reduced amortization costs from the acquisition of Activision Blizzard.
Operating expenses rose by 8% (7% in constant currency), primarily due to ongoing investments in shared R&D and impairment charges related to Xbox. Operating income declined by 14% (15% in constant currency), with operating margins decreasing year-over-year to 21%. In the immediate future, things don't exactly look rosy, either. Hood added that Microsoft forecasts Xbox content and services revenue to decline in the mid-single digits , and hardware revenue should also decline year-over-year.
Perhaps more interesting than the financials is the brief statement shared by Microsoft CEO Satya Nadella :
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. 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.
With those numbers, returning to growth as early as next year sounds like a tall order, especially at this juncture. According to recent reports , Xbox is still losing money on each console sold (even after the imminent price hike ) due to the component crisis, and Microsoft itself expects this to worsen in 2027.
Hopefully, Nadella isn't referring to another massive wave of layoffs across the internal studios, as that would be a massive blow to the Xbox first-party pipeline, not to mention another personal disaster for so many developers.
About the author : With over two decades of experience in gaming journalism, Alessio Palumbo has led the gaming vertical at Wccftech since August 2015. He started working at a young age for Italian websites like Everyeye.it, Gamestar.it, Nextgame.it, and Multiplayer.it before kickstarting the indie English-language publication Worlds Factory as its founder and Editor in Chief. In the last decade, he has coordinated the overall output of Wccftech's gaming section, managed PR relations, assigned reviews, produced daily news coverage, edited gaming content as needed, and delivered game reviews. Arguably, his trademark content is the long series of exclusive developer interviews that have been cited by Wikipedia and by the biggest news media and gaming publications. His passion for technology also makes him knowledgeable when it comes to gaming hardware and tech. His favorite genres include RPGs, MMORPGs, and action/adventure games.
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