Xbox margins hit by mysterious impairment charge

Xbox's operating margins were downwardly affected by an impairment charge, which could reflect lower-than-expected performance from one or multiple games.

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According to management, Xbox's holiday 2025 content and services results were "well below expectations." Earnings-wise, Xbox delivered around $5.96 billion in revenue, down over $600 million from last year. Xbox splits its revenue in two, with hardware on one side and digital content on the other, and half of this yearly loss, or $300 million, was from the digital side.

In the report, Microsoft's CFO Amy Hood reveals that Xbox had an impairment charge during the period. This usually happens when a game is performing badly and a company lowers the internal value that it has assigned to the project. Every game has what's called a lifetime value attached to it, and this is monetary. If a game does badly, a company will write it down, or write it off entirely. It's also possible that this impairment charge is related to cancelled games and the studio that Microsoft shut down in mid-2025, during the Q1'26 period.

• Read more: Did Outer Worlds 2's underperformance lead to a write-down at Xbox?

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"Operating expenses increased 6% and 5% in constant currency driven by the impairment charges in our gaming business noted earlier, as well as R&D investments in compute capacity and AI talent."

We saw WB Games do this with Suicide Squad, we've also seen Sony do this with Concord, and more recently, Paradox with the failed Vampire: The Masquerade Bloodlines 2.

It's unclear as to which projects that this impairment charge could be referring to, however Microsoft and Activision released a number of games throughout the October - December 2025 period, including:

• Keeper (Double Fine/Xbox Game Studios) - October 17
• Ninja Gaiden 4 (Team Ninja/PlatinumGames) - October 21
• The Outer Worlds 2 (Obsidian Entertainment) - October 29
• Fallout 4 Anniversary Edition (Bethesda Game Studios) - November 10
• Call of Duty: Black Ops 7 (Activision) - November 14

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Notably, Black Ops 7 appears to have missed the mark, showing up in the #5 spot on the best-selling US games rankings--typically, Call of Duty tops these charts. Black Ops 7 also broke a 10-year franchise sales streak on the PlayStation Store.

Whatever the case may be, it's possible that Xbox's margins were squeezed by the impairment charge. On the flip side, the Xbox division may have seen a more immediate uplift on short-term profits in the period as Xbox hardware sales were down -32% in the period.

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Circling back to a point from before, it's possible that this impairment charge in some way relates to the layoffs, project cancellations, and the studio closure that Microsoft performed in July 2025.

At the time, Microsoft cancelled three big games: Everwild from Rare, the new Perfect Dark shooter from The Initiative (which was simultaneously shut down), and ZeniMax Online's Project Blackbird, a new MMORPG project that was so big that its cancellation led to the immediate resignation of ZeniMax Online founder Mat Firor.

The extent of how this impairment charge affects Xbox's profits during holiday 2025, and what exactly the impairment charge is for, remains unclear.