Xbox gaming revenue fell 2 percent and 3 percent in constant currency to $113 million.
This was driven by lower sales of Xbox hardware, which saw revenue decline 29 percent due to fewer consoles sold. Microsoft previously reported Equipment revenue decreased 42 percent year-over-year in the fourth quarter for the full year ended June 30, 2024.
As stated in Microsoft Q1 FY26 Earnings ReportThe decline in gaming revenue was partially offset by growth in “Xbox content and services,” which increased 1 percent “versus the strong prior-year comparable performance.” The company attributes the latter to “better-than-expected performance” of third-party content.
During a call with investors forecasting the second quarter, Microsoft CFO Amy Hood said the company expects Xbox content and services revenue to decline “in the low to mid-single digits.” This compared with the same period in the previous year, which “benefitted from proprietary company performance”, partially offset by growth in subscriptions.
In addition, Hood said equipment revenue should be down “compared to last year.” This is despite the CFO saying the company saw “a great response to the launch of Xbox Ally” on October 16.
Finally, Hood added that Mining craft reached 155 million monthly active users, calling it an “all-time high”, and also set a new record for PC players, although without specifying the number.
Amid rising prices and stated demand for higher profits, Xbox continues to focus on artificial intelligence and cloud services.
During the same call with investors, Hood said revenues from Azure and other cloud services were “outperforming expectations,” with revenue growth of 40 percent. For artificial intelligence and cloud services, revenue was $30.9 billion, representing 28 percent year-over-year growth.
The focus is on services such as Azure and the use of artificial intelligence, which Microsoft says it wants to promote. new xbox consolewas met with criticism. Firstly, the developers not inclined towards generative artificial intelligence, including reports of Microsoft-owned developer King, best known for the Candy Crush series, saying the studio low adoption of AI within the country after Microsoft authorized its use. (Earlier this year, Compulsion Games, another Xbox Game studio, said the use of generative AI was “not acceptable.”not required” parent company.)
At the same time Microsoft continues to face pressure from the current state of global events. Microsoft has been one of the main active targets of the Palestinian-led Boycott, Divestment and Sanctions (BDS) campaign over its Azure cloud services and artificial intelligence.
In 2024, Microsoft employees launched No azure for apartheid, Pressuring the company to terminate all Azure contracts and partnerships with the Israeli military and government. Meanwhile, throughout 2025, developers publicly expressed solidarity.
In April, the team behind Tenderfoot Tactics removed the game from the Xbox store in support of the pro-Palestinian boycott. Then, in August, STJV union members at Arkane Studios in France were joined by the BDS movement and demanded action from Xbox in an open letter. “We believe that Microsoft cannot be complicit in genocide, and as Microsoft employees, we do not want to be part of this sinister project for the Gaza Strip,” the letter said.
In September Microsoftterminated and disabled“Azure services to the Israeli Ministry of Defense following allegations published in Guardian article about how Azure technology is being used to spy on Palestinians. A month earlier, a number of current and former Microsoft employees and community members quarter spent at Microsoft headquarters in Redmond, Washington, as part of the “No Azure for Apartheid” protest.
The news comes amid Xbox's decision to lay off hundreds of employees and… raise the price of equipment and him Game Pass subscription service last year. Last week, a report indicated that Microsoft's mandate to make a profit of 30 percent may be partly behind these decisions.
