Xbox revenue drops 10% as Microsoft bets big on AI and cloud business, plans gaming reset

Xbox reports 10 percent drop in revenue across content and services following mass job cuts and studio offload, while Microsoft AI business booms

New details from Microsoft reveal that Xbox saw a 10 percent drop in revenue across content and services this last financial quarter, following a massive wave of layoffs and the offloading of development studios. The financial report, which you can read in full on the Microsoft website, provides the aforementioned data under a wider four percent decrease to $12.9bn in the company's personal computing business. The same report offers little else in regard to Xbox, though insights focused on other areas of the company show far better performance elsewhere. For example, Cloud and AI are plastered on the title of the report, and are credited for fueling the $90bn quarterly revenue result. "We are advancing the frontier on the cost-to-outcome curve, ensuring every customer can turn tokens into business results," said Satya Nadella, chairman and chief executive officer of Microsoft. "This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation." "We delivered a strong quarter to close out the fiscal year, highlighted by Microsoft Cloud revenue of $59.3 billion, up 27% year-over-year," said Amy Hood, executive vice president and chief financial officer of Microsoft. As for Xbox, Nadella did speak briefly about the gaming division in an earnings call coinciding with this quarterly report. He said: "When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth. We have the best IP in the industry and talented studios around the world, and believe we can bring these strengths together, and expect to return the business to growth in fiscal 2027." It was earlier this month Microsoft announced 3,200 layoffs across its Xbox gaming division, with 1,600 of those job cuts being implemented immediately. This resulted in several major studios under its umbrella - including Bethesda and Id Software - to suffer significant staffing woes as a result of greater scrutiny being paid towards Microsoft's gaming venture. The company also jettisoned four studios (with Arkane Lyon potentially being a fifth). One of those studios - Double Fine - only yesterday announced layoffs. In a statement, the company said this was a decision made as a result of the studio's new independent status. All of this part of Xbox's wider "reset" to the business. Meanwhile, the Xbox itself is becoming a hard sell for many. Xbox Series X/S price hikes have been made during harsh economic times, making it less affordable for potential customers. While this has also impacted its competitor in Sony and the PlayStation 5, it's been made necessary by the generative AI boom and subsequent hardware component shortages that Microsoft as a wider company has benefited from. Also, it's worth noting that Microsoft and Xbox remain present on the BDS boycott. The company has remained as such due to its involvement in the continued bombardment and mistreatment of people in Gaza. The BDS boycott has called explicitly for people to cancel their Xbox subscriptions and Xbox-owned games. Whether Xbox can turn around this drop in performance with upcoming releases like Gears of War E-Day or larger strategy shifts remains to be seen. But it's a deep financial blow to an already struggling gaming company, marching headfirst into a near-future that's unlikely to get any kinder on the economic front.

Xbox Revenue Drops 10% as Microsoft Bets Big on AI, Cloud Businesses

Microsoft's latest results show Xbox revenue fell 10%, while AI and cloud businesses continued to grow, highlighting how the company is balancing gaming with its long-term technology plans. Microsoft's latest quarterly results show that Xbox content and services revenue fell 10% compared to the same period last year. The company's overall growth is again driven by AI and Cloud infrastructure investments. The company said that the drop came mainly because third-party game sales were lower. Even so, first-party games and well and remained bright spots for the gaming business. Microsoft's Xbox division has been going through significant restructuring. Earlier this year, the company laid off thousands of employees to reorganize the internal structure. Multiple gaming studios have been closed, and some of them have become autonomous again. However, Microsoft CEO Satya Nadella and Xbox CEO Asha Sharma are still hopeful about the gaming division, and they have sai d that by the end of FY2027, growth will be significant. In his speech, Satya Nadella said, "We have the best IP in the industry, and talented studios around the world, and believe we can bring these strengths together and expect to return the business to growth in fiscal 2027." On a similar note, Asha Sharma, the CEO of Xbox, has revealed, "In FY26, over 200 million new players came to XBOX and our games, but our business did not grow with our audience. We need to close that gap by investing in what players value. That will take time, but we expect to return to growth by the end of FY27." Also Read: The result does not mean Xbox will miss out; players could also see changes in Game Pass. AI may help recommend games that better match a person's interests instead of offering the same suggestions to everyone. Better cloud technology could also improve game streaming and make more reliable. For now, Xbox has gone through a quieter quarter. However, Microsoft's AI spending could end up improving the gaming experience in ways that players notice over the next few years.