Xbox has made progress expanding margins, new CEO says

Xbox's new CEO Asha Sharma appears to say that the games segment has better profit margins than before, or at the very least there's been progress made in that regard.

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While Microsoft reports another consecutive quarter of a drop in gaming earnings, this time a -$380 million year-over-year dip in total gaming revenues, it appears that Xbox has become more profitable. Division CEO Asha Sharma indicates that Xbox now has its operating margins under better control, and this could support recent reports that Microsoft's board and CFO have eased pressures on Xbox to deliver strict quarterly margin targets.

"While we have made progress expanding the business and our margins, player and revenue growth has not yet met our ambition. We know we have work to do to earn every player today and into the future," Sharma said on Twitter, the same day Microsoft announced its Q3'FY26 results.

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As for the gaming brand, Xbox delivered $5.34 billion in gross revenue through the Q3 period, down roughly 7% year-over-year. Hardware was at its lowest point in the Xbox Series generation, making up only 4% of total earnings during the quarter.

Microsoft's CFO also noted that Xbox is being impacted by impairment charges, which are lowering/affecting profits.

It's also likely that Xbox's progress in wrangling its margins, which were as low as 12% across a 9-month period back in 2021, is due to laying off hundreds of workers and cancelling dozens of projects.

Following the $70 billion Activision acquisition, it was said that Xbox management was pressured to deliver a 30% profit margin, which is unusually high for any platform-holder.

Microsoft will have a harder time finding extra revenue in FY26; the company expects Q4 earnings to be down by double-digits thanks to the new Game Pass price reduction. Sharma has also said that daily active players are now Xbox's new north star, meaning the games company is focusing on the same kinds of metrics as online giants like Fortnite and Roblox.