Xbox Revenue Drops, While Microsoft's Cloud Business Grows

Xbox was not the driving force behind Microsoft's $82.9 billion.

Proxima Studio, Shutterstock

Microsoft released a financial report for Q3 of FY26, and Xbox is not the one bringing home the dough. While Microsoft saw $82.9 billion in revenues, which is an 18% increase compared to the previous fiscal year, Xbox hardware revenue decreased 33%, "driven by lower volume of consoles sold."

Gaming revenue dropped $380 million, or 7%, with Xbox content and services revenue lowered 5%. Revenue in More Personal Computing overall, which includes gaming, was $13.2 billion and decreased 1% this quarter.

"While we have made progress expanding the business and our margins, player and revenue growth has not yet met our ambition. We know we have work to do to earn every player today and into the future," said Asha Sharma, the new CEO of Xbox, who started the position when Phil Spencer left the company in February.

Microsoft's CEO Satya Nadella says the changes are part of efforts to "win back fans" across its brands. "The team is recommitting to our core fans and players and shaping the future of play. Last week’s Game Pass changes are one example of how we are staying responsive to customer feedback" (via The Verge).

He also mentioned changes to Windows, which have "brought performance improvements for lower memory devices, streamlined the Windows Update experience, and brought back focus to core features and fundamentals." Some of the adjustments were allowing users to pause Windows Updates indefinitely and removing unnecessary Copilot buttons in Windows 11 apps.

Despite this loss in the gaming department, Microsoft's cloud business is doing well, having brough the company $54.5 billion in revenue, which is a 29% year-over-year increase.

"We are focused on delivering cloud and AI infrastructure and solutions that empower every business to eval-max their outcomes in the agentic computing era," Nadella said. "Our AI business surpassed an annual revenue run rate of $37 billion, up 123% year-over-year."

Hopefully, Sharma will be able to turn the tide around. She has already started considering ideas to improve Xbox, such as lower-priced tiers for the Game Pass.

Don't forget to subscribe to our Newsletter and join our 80 Level Talent platform, follow us on Twitter, LinkedIn, Telegram, and Instagram, where we share breakdowns, the latest news, awesome artworks, and more.

Are you a fan of what we do here at 80 Level? Then make sure to set us as a Preferred Source on Google to see more of our content in your feed.