Xbox “has work to do”, but is “recommitting” to core fans following hardware revenue drop of 33% year-on-year

Microsoft’s Q3 FY2026 financial report (covering January-March 2026) reveals continued challenges for its Xbox gaming division, despite the company’s overall strong performance. Overall Microsoft revenue rose 18% to $82.9 billion, but gaming revenue declined 7% ($380 million), with Xbox content and services dropping 5% year-on-year and hardware revenue falling 33%.

The significant hardware decline follows consecutive price increases for Xbox Series X/S consoles in the US—the second hike in six months—which have impacted sales momentum. However, the division showed one bright spot: Xbox reached record monthly active users during the quarter, indicating continued player engagement despite revenue challenges.

New Xbox CEO Asha Sharma, who assumed the role less than three months ago, addressed the results candidly on social media. “While we have made progress expanding the business and our margins, player and revenue growth has not yet met our ambition,” Sharma stated. “We know we have work to do to earn every player.” This notably transparent acknowledgment of shortcomings represents a candid response to the poor quarterly results.

The decline reflects a persistent trend for Xbox, with Q2 showing similar year-on-year drops (5% in content/services, 32% in hardware), and Q1 experiencing a 29% hardware decline despite 1% content growth. Microsoft has forecasted further declines ahead, signaling continued headwinds for the division. The company appears committed to recommitting to core fans as it navigates these challenges.

Xbox “has work to do”, but is “recommitting” to core fans following hardware revenue drop of 33% year-on-year

Sources