In the third quarter, Xbox hardware revenue experienced a 33% decline compared to the same period in the previous year

Microsoft reported its third-quarter financial performance, noting a 5% reduction in Xbox content and services and a 33% decrease in hardware sales.

Image credit: Kamil Switalski via Unsplash

Financial Overview

In the quarter ending March 31, 2026:

Revenue: $82.9 billion, representing an 18% rise
More personal computing, including Xbox: $13.2 billion, a 1% reduction
Operating income: $38.4 billion, up by 20%
Net income: $31.8 billion, marking a 23% increase

Key Developments

Growth in the third quarter was primarily driven by Microsoft Cloud, which produced over $54 billion. This surge was fueled by robust demand for Azure and AI-driven applications and services. Revenue from Intelligent Cloud climbed 30% to $34.7 billion, while Azure and associated services experienced a 40% year-over-year gain.

Image credit: Xbox

Despite a 7% drop in overall gaming revenue, Xbox saw record monthly engagement from users and significant streaming activity. A 33% fall in Xbox hardware income was attributed to last year's price hikes for the Series X and S consoles.

CEO Satya Nadella shared during an earnings discussion that Microsoft is laying essential groundwork to recapture its audience and boost interaction within its consumer sector, including Xbox. Nadella emphasized a focus on maintaining quality standards and improving the experience for dedicated users. Xbox is renewing its commitment to core players, influenced by feedback-driven modifications such as the recent adjustments to the Game Pass service. This included a price cut from $29.99 to $22.99 for the top-tier and from $16.49 to $13.99 for PC Game Pass. The Ultimate version's previous price of $19.99 on console and $11.99 on PC had been set before an October 2025 price surge.

Financial projections indicate a slight reduction in Xbox content and services revenues, with hardware sales anticipated to dip further. CFO Amy Hood explained that this follows a year when first-party content was stronger and recent Game Pass price changes aim to provide more value to gamers.

Microsoft disclosed plans to revert the Microsoft Gaming brand back to Xbox under new leadership, with Asha Sharma and Matt Booty highlighting the central role of consoles in upcoming strategies. Their focus remains on affordability, personalization, and openness, with growth driven by increasing daily active users and enhancements across services.

Xbox intends to explore new markets, such as China and other emerging areas, focusing on mobile-first audiences. Sustaining growth in live gaming and delivering long-term value are pivotal aims. The company will also work on enhancing creator platforms like Minecraft, The Elder Scrolls, and Sea of Thieves, and expanding community features.