Weak Holiday Season Sales: Xbox Revenue Declines in Q2 FY26

Microsoft's gaming division generated revenue of $5.958 billion (€4.977 billion) in the second quarter of 2026 (October to December). This was an increase on the previous FY26 quarter ($5.508 billion; €4.757 billion), but a relatively weak one considering it was the Christmas quarter. In the last Christmas quarter, revenue was $6,581 billion (€6,322 billion).

In FY26 Q2, sales in the hardware and software segments declined compared to the previous year. Gaming revenue decreased 9% or 10% in constant currency. Xbox content and services revenue decreased 5% or 6% in constant currency. This was below expectations driven by first-party content with impact across the platform.

Although specific games were not mentioned, the decline is likely mainly attributable to Call of Duty: Black Ops 7, which was not as successful as its predecessor and only ranked 7th in Circana's annual US charts, one place ahead of Call of Duty: Black Ops 6. Battlefield 6 was clearly the winner this year. Xbox Game Studios also released Keeper, Ninja Gaiden 4 and The Outer Worlds 2 during this period. The decline in sales was even more pronounced in the hardware segment (Xbox consoles), where revenue fell by 32%.

CFO Amy Hood also referred to "impairment charges", which were not explained in more detail: "Operating expenses increased 5% and 4% in constant currency driven by R&D investments in compute capacity and AI talent, as well as impairment charges in our gaming business."

Microsoft CEO Satya Nadella reaffirms the company's dedication to the gaming sector: "And in gaming we are committed to delivering great games across Xbox, PC, cloud, and every other device. And we saw record PC players, and paid streaming hours on Xbox."

The outlook is also cautious. In the Xbox content and services sector, they expect revenue to decline by a mid-single digit percentage against a comparable figure from the previous year that benefited from strong content performance. This decline will be partially offset by growth in Xbox Game Pass. Hardware revenue is also expected to decline year-on-year.

The gaming division is the company's third-largest revenue generator. It is significantly behind the server products and cloud services, as well as the Microsoft 365 commercial products and cloud services. However, it is ahead of LinkedIn and the Windows & Devices division. Microsoft reported revenue of $81.3 billion for the whole company, which increased by 17% (15% in constant currency). Net income on a GAAP basis was $38.5 billion, up 60%, while net income on a non-GAAP basis was $30.9 billion, up 23% (up 21% in constant currency).