In a nutshell: Things aren't getting better for Xbox. Microsoft's latest financial results reveal that the segment's hardware revenue fell 32% year-over-year, while the entire division experienced a 9% decline. The company blames the drop on lower Xbox console sales, as well as underperforming first-party games such as Call of Duty: Black Ops 7.
In its second-quarter results for financial year 2026, which ended December 31, 2025, Microsoft wrote that Gaming revenue decreased by $623 million to $5.99 billion, or 9%. The drop was driven by the 32% decline in Xbox hardware, as well as a small dip in Xbox content and services.
Microsoft specified that there was a 5% decline in content and services – the section that includes Game Pass subscriptions.
The segment is a contrast to Microsoft's overall results, which saw the Redmond giant's revenue increase by 17% compared to the same period last year as it hit $81.3 billion. Operating income, meanwhile, was up 21% to $38.3 billion.
Microsoft CFO Amy Hood said that Microsoft expects Game Pass revenue to grow while Xbox hardware falls again in Q3.
"[Gaming revenue was] Below expectations, driven by first-party content with impact across the platform," Hood said. The four first-party games released during the quarter were Ninja Gaiden 4, Keeper, The Outer Worlds 2, and Call of Duty: Black Ops 7.
It was reported in December that the latest CoD entry sold only 401,000 copies on Steam in its first 26 days – an 82 percent drop from Black Ops 6's 2.3 million sales over the same period the previous year. Moreover, the game's peak daily concurrent player numbers during its launch period were significantly lower than those of Black Ops 6 in 2024 and Modern Warfare 2 in 2022.
2025 was not a good year for the Xbox brand. The Xbox Series X and Series S continue to trail PlayStation 5 by a wide margin in global sales, while Microsoft's long-term pivot toward services has raised questions about the platform's hardware future.
High-profile studio closures, layoffs following the Activision Blizzard acquisition, and the mixed reception to recent first-party releases have further dented confidence in the Xbox brand among fans. People aren't even using the consoles to watch Pornhub anymore.
The Xbox results are part of Microsoft's More Personal Computing segment, which also includes Windows and Devices and Search and news advertising. The section as a whole saw its revenue drop 3% to $14.25 billion, while operating income decreased 3% to $3.8 billion.