Xbox experienced a significant revenue decline of $1.7 billion, or 7%, over the past fiscal year, primarily driven by decreases in content and services, as well as hardware sales. Content and services revenue fell 5% compared to the previous year, which had benefited from strong first-party releases, though Xbox Game Pass saw some growth. Xbox hardware revenue saw a steeper drop of 29% due to lower console sales volume.
This downturn was reflected in the company's fourth-quarter results, where Xbox content and services revenue was down 10% year-over-year. Operating expenses rose by 8%, attributed by CFO Amy Hood to investments in research and development and impairment charges. Consequently, operating income decreased by 14%, with operating margins declining by 21%.
In light of these figures, CEO Asha Sharma expressed confidence in a future turnaround. "In FY26, over 200 million new players came to Xbox and our games, but our business did not grow with our audience," Sharma stated on X. "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."
Microsoft's fiscal year 2027 concludes on June 30, 2027. While the specific strategies to achieve this projected growth remain unclear, the company's leadership is emphasizing a commitment to long-term expansion. Microsoft CEO Satya Nadella echoed Sharma's sentiment, noting that the company is making necessary decisions across its content portfolio, platform, and operations to reset the business. "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," Nadella said during an earnings call.
Despite the challenges faced by the Xbox division, Microsoft as a whole reported substantial financial success. The company achieved nearly $332 billion in revenue for its 2026 fiscal year, an 18% increase from the prior year, with operating income exceeding $155 billion. This indicates that while Xbox is navigating a difficult period, the broader Microsoft entity remains financially robust.