Xbox FY23 Q3 gaming revenue down 4% year-over-year

Xbox Series X boot up screen
(Image credit: Microsoft)

Update, 5:55 p.m. ET:

This story has been updated with comments from Microsoft CEO Satya Nadella on the accompanying earnings call.

What you need to know

  • Microsoft's financial results for FY23 Q3 show Xbox gaming revenue down 4% year-over-year.
  • Xbox content and services revenue was up 3% year-over-year due to growth in Xbox Game Pass.  
  • Xbox hardware was down 30% year-over-year, which Microsoft states is due to console shortages.
  • This was the second strongest Q3 ever for Xbox gaming revenue. 

The latest financial results for Microsoft and the Xbox brand are here. 

Microsoft shared on Tuesday that for FY23 Q3, Xbox gaming revenue was down 4% year-over-year. This was primarily driven by hardware, which was down 30% year-over-year from FY22 Q3. Outside of hardware, Xbox content and services was up 3% year-over-year, which Microsoft states is primarily due to growth in Xbox Game Pass.

Last year at this time saw the best-ever Q3 for the Xbox brand in revenue, with FY23 Q3 still the second-best third quarter ever for Xbox. The prior earnings report for the previous quarter saw a much larger drop for the brand, with Xbox revenue down 13% year-over-year at the time. Continued growth in Xbox Game Pass for the past quarter is notable, with the service seeing steady releases such as Hi-Fi Rush, Atomic Heart, and more. 

During the conference call accompanying the financial results, Microsoft CEO Satya Nadella noted that the quarter set a record for Xbox monthly active users, with revenue from gaming subscriptions reaching almost $1 billion. Nadella added that lifetime unique users for first-party games reached 500 million players.

Microsoft previously confirmed in January 2022 that Xbox Game Pass had reached 25 million subscribers. While there's been no update since, Microsoft has continued to share that Xbox Game Pass is growing on a quarterly basis.

Microsoft reported $52.9 billion in revenue for the quarter, up 7% year-over-year, while Windows OEM and Surface sales dropped significantly.

Windows Central's take

The hardware revenue drop isn't surprising, unfortunately, considering that demand for the Xbox Series S has dropped and supply issues have emerged for the Xbox Series X over the last few months. Microsoft needs to ship more first-party games to increase demand for the former, while whatever supply issues are plaguing the latter need to be resolved ASAP. 

The continued growth of Xbox Game Pass is notable, and with first-party games like Redfall and Starfield on the way in May and September respectively, there's no reason to expect this won't continue. Microsoft will also be looking to increased revenue with the pending acquisition of Activision Blizzard. 

It's also worth noting that despite a 30% drop in hardware, overall Xbox gaming revenue only dropped 4%, showing the strength of content and subscription services for the brand. 

Samuel Tolbert
Freelance Writer

Samuel Tolbert is a freelance writer covering gaming news, previews, reviews, interviews and different aspects of the gaming industry, specifically focusing on Xbox and PC gaming on Windows Central. You can find him on Twitter @SamuelTolbert.