Xbox has exceeded Microsoft’s expectations, posting record service and game revenues—only the hardware dip is the usual disappointment on the report card.
For several years now, Xbox has left behind the era when success was judged solely by console sales. Today, Microsoft’s gaming division is an ecosystem encompassing services, subscriptions, cloud gaming, and the presence of first-party titles on other platforms—perfectly reflecting the evolution of the industry. Even as hardware sales decline, Xbox’s strategy has put the brand in a privileged position, despite the recent layoffs.
Xbox makes more money than ever, but Series X|S hardware continues to fall
Xbox closed the last quarter with significant revenue growth, mainly driven by the success of its services and expanding its first-party catalog beyond Xbox hardware. Content and services revenue, including Xbox Game Pass, jumped 13% year-on-year, while hardware revenue saw yet another quarterly decline. This time, Microsoft reported a 22% drop in console sales versus the same period last year.
Even so, Microsoft’s gaming division increased total revenue by 10% year-over-year, totaling $2 billion. This surge was largely fueled by the multiplatform strategy: Forza Horizon 5, for example, sold over 3 million copies on PS5 alone, and Indiana Jones and the Great Circle was another major hit—helping Microsoft become the top publisher on Sony’s console.
Satya Nadella, Microsoft’s CEO, told The Verge that Game Pass generated almost $5 billion in annual revenue and the gaming division hit 500 million monthly active users. However, hardware remains Xbox’s Achilles heel: Series X|S sales fell by 25% over the last fiscal year, mainly due to price hikes and waning demand.
Xbox triumphs and exceeds expectations, but hardware sales slump yet again
All signs point to hardware continuing to struggle in upcoming quarters, even though Xbox remains committed to next-gen consoles. Numbers might improve by year-end thanks to the ROG Xbox Ally, with pre-orders expected to open after Gamescom 2025 (August 20-24). Microsoft has tried to offset hardware woes with more first-party releases on PS5 and Nintendo Switch 2, and more ports are expected soon.
“We are now the leading publisher on both Xbox and PlayStation this quarter with the launches of Forza Horizon 5 and Oblivion Remastered,” Nadella emphasized. According to Circana, six of PlayStation’s top ten best-selling games in Q2 2025 are Xbox titles: Minecraft, Indiana Jones and the Grand Circle, DOOM: The Dark Ages, Forza Horizon 5, Oblivion Remastered, and Call of Duty: Black Ops 6, which alone has topped 50 million players.
Microsoft is still heavily investing in artificial intelligence, even after laying off 9,000 employees this year. This investment comes as the company brings in record revenue and restructures several divisions, including Xbox. Recently, Everwild (an MMO from ZeniMax) was cancelled, layoffs hit several Xbox Game Studios teams, and The Initiative studio was shut down along with the cancellation of Perfect Dark. Still, Xbox is set for a strong 2026, with Forza Horizon 6, Gears of War: E-Day, and Halo making a return.
This is how Microsoft makes money. (Chart by Economy Insights)
At Microsoft as a whole, the financial results were equally strong: $76.4 billion in revenue and $27.2 billion in net profit last quarter, up 18% and 24% respectively. These results would be unimaginable without the cloud: Azure was up 39% year-over-year and topped $75.5 billion in annual revenue. Microsoft 365, LinkedIn, Surface, and Bing advertising all saw significant growth as well.
Source: 3djuegos
