Sales of Xbox hardware declined by 29% in the first quarter. Meanwhile, third-party content saw a performance that surpassed expectations
Microsoft has unveiled its earnings for the first quarter of FY26, noting a decline of 2% in gaming revenue and a significant 29% reduction in hardware sales.
Financial Performance
For the quarter ending September 30, 2025:
- Total Revenue: $77.7 billion (an increase of 18% compared to last year)
- Net Income: $27.7 billion (up by 12% from the previous year)
- More Personal Computing (including Xbox) Revenue: $13.8 billion (4% higher year-over-year)
Key Insights
The company's overall quarterly revenue was bolstered by strong performance from Cloud and AI services, registering a 28% jump to $30.9 billion.
The More Personal Computing division, encompassing Xbox, grew 4% reaching $13.8 billion, though gaming revenue dipped by 2%, primarily due to declining Xbox hardware sales.
This decrease was somewhat mitigated by a 1% rise in Xbox content and services, credited to Xbox Game Pass and successful third-party content.
Focusing on hardware, Microsoft saw a 29% drop attributable to fewer sales across its devices.
Amy Hood, CFO of Microsoft, commented, "We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share. Continued strength in the Microsoft Cloud reflects the growing customer demand for our differentiated platform."
The company forecasts its next-quarter revenue to range between $79.5 billion and $80.6 billion, marking an increase of approximately 14% to 16%.
Microsoft also anticipates Xbox content and services revenue might see a decline "in the low to mid-single digits" due to fewer first-party titles than the prior year. However, subscription growth might help offset this downturn.
Recent financial results follow price increases within Microsoft's gaming sector.
In the previous month, console prices were announced to rise again in the US, attributed to "changes in the macroeconomic environment," with increments ranging from $20 to $70.
Furthermore, early in October, Microsoft raised the Xbox Game Pass price by 50% to "offer more flexibility, choice, and value to all players."
Additionally, a recent report pointed to a 33% increase in Xbox development kits costs, reaching $2,000.
Meanwhile, Xbox president Sarah Bond announced that "next-gen hardware is in development."
Bond stated, "We have a partnership we've announced with AMD around it, so that is coming."
"We identified an opportunity to innovate in a new way and offer gamers additional choices alongside our next-gen hardware. We continually engage with what players and creators seek. If there is demand for innovation, we're committed to developing it."