Xbox earnings down -$380 million in latest quarterly decline

Microsoft today announced its Q3FY26 earnings, showing a big decline in total Xbox revenues.

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Xbox's FYQ3'26 results for the January - March 2026 period are in, and all-told, the games division is said to have made $5.34 billion in the three-month season, showing a sizable -$380 million decline in gross revenues from the year prior.

The drop represents a -5% in content & services (games, subscriptions, etc) to $5.12 billion, with Xbox console hardware dropping -33% to a meager $221 million, a new all-time record low for the Xbox Series generation. Management also notes that first-party games performed better during this time last year than they did this year; in Q3'FY25, Microsoft released Age of Mythology Retold, as well as Avowed on Xbox, and then re-released that same game a year later on PS5. Xbox's Q4'26 will also face tough comparables because of the meteoric launch of Forza Horizon 5 in April 2025, which affects the prior Q4'25 period. Microsoft hopes to counter that with multiple releases like two ports of South of Midnight, Double Fine's new multiplayer game Kiln, and Forza Horizon 6's launch in May.

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"Gaming revenue decreased $380 million 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," Microsoft wrote in its 10Q report.

Xbox hardware was also down quite a bit--so much that Q3'26 had the worst console revenue of the Xbox Series lifetime.

"Xbox hardware revenue decreased 33% driven by lower volume of consoles sold," the report states.

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In the call with investors, Microsoft CFO Amy Hood says that the Xbox games division was still being impacted by impairment charges throughout Q3. These will directly impact profit.

"Operating expenses increased $259 million or 7% driven by impairment and other related expenses in our Gaming business and continued investments in research and development compute capacity, AI talent, and data to support product development that benefits the entire portfolio," Hood said during the call.

We discussed these impairment charges back in January, speculating that titles released during Microsoft's Q2'26 period, including Obsidian's The Outer Worlds 2 may have missed expectations and contributed to this write-down impairment.

It's also highly likely that these impairment charges, which are recorded as operating expenses and thus lower operating profit for the Xbox division, are also related to the heavy layoffs and cuts that were made to Microsoft's gaming teams throughout the last few years.

FY26 may actually be the lowest-earning year for Xbox since the $70 billion Activision buyout. The company says that it expects Q4 earnings to drop "in the low teens," which is substantial and directly reflects the recent -23% Game Pass price drop that went live earlier this month, which affects Microsoft's Q4'FY26 period.