Microsoft shared its latest financial results on Wednesday, detailing the results for FY26 Q1, while revealing that Xbox content and services revenue was up 1% year-over-year for the quarter ending Sept. 30, 2025.
Specifically, Microsoft credits growth in Xbox Game Pass and third-party content for the slight increase which beat expectations, noting that it was somewhat offset by a decline in first-party content.
As for consoles, Xbox hardware was down 29% year-over-year, meaning overall gaming revenue was down 2% year-over-year, with Microsoft noting that this came in comparison to a strong prior year.
During the earnings call accompanying the financial results, Microsoft CEO Satya Nadella praised the Xbox division's recent launch of several critically-acclaimed games, including Double Fine's Keeper, as well as praising the launch of the recent ASUS ROG Xbox Ally partner devices.
Overall, Microsoft reached $77.7 billion in revenue for the quarter and $27.7 billion in net income for the quarter, up 18% and 12% year-over-year, respectively.
A slower quarter in a strong year of games
Microsoft noting a decline in first-party content for the quarter isn't surprising. While this period didn't go without a game launch thanks to the prolific Obsidian Entertainment sending out Grounded 2 into early access (as well as The Coalition with a remaster via Gears of War: Reloaded) the quarter still paled in comparison to other periods of the year.
2025 has seen huge Xbox first-party games launch like Bethesda Game Studios' The Elder Scrolls 4: Oblivion Remastered and id Software's DOOM: The Dark Ages. Oblivion Remastered in particular has done quite well, and is currently the fifth best-selling game of the year in the U.S, per analytics group Circana.
That's in addition to a flood of ports to PlayStation hardware that brought previously console-exclusive titles over such as Playground Games' Forza Horizon 5.
What's coming for the final quarter of the year?
Looking ahead, there's a major mixture of things to look to, with several higher-profile first-party Xbox game launches closing out 2025, alongside a huge shake-up to Xbox Game Pass.
The Xbox division has multiple games that'll be factored into the next quarter, including Obsidian Entertainment's science-fiction role-playing game The Outer Worlds 2, as well as Activision's Call of Duty: Black Ops 7. There are also some big third-party games, with Electronic Arts launching Battlefield 6 in October.
At the same time, next quarter will also include an Xbox Game Pass price hike on the highest tier, with the price of Xbox Game Pass Ultimate recently increasing 50% to $30 a month. How will the higher price play out compared to however many players may have downgraded to a lower tier (or unsubscribed entirely)? I don't know, but I'm extremely curious to find out.
Microsoft expects revenue to decline in the low-to-mid single digits for Xbox content and services for the next quarter, though with continued subscription growth.
All of this also comes as recent reports indicate that the Xbox division is being tasked with reaching a 30% profit margin, a number that's significantly higher than the average across the gaming industry.
I have to continually reiterate that it's utterly disappointing to see a company raking in profits (not just overall revenue) that still sprints to lay off thousands of employees. Microsoft's hardly unique here, with many other companies such as Amazon recently cutting deep into their workforces, but it remains depressing.
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