Tech giant Microsoft has reported declines in its video games division’s financial performance for the second quarter of this year, something that it attributed to first-party performance and a massive dip in console sales.

The numbers

For the three months ending December 31, 2025

• Gaming revenue: $623 million, down 9% year-on-year
• Xbox content and services revenue: Figures not disclosed, but down 5% year-on-year
• Xbox hardware revenue: Figures not disclosed, but down 32% year-on-year

The highlights

The company’s Xbox division generated $623 million in total for the three months ending December 31st, 2025. Revenue in the arm’s content and services (game sales and subscriptions) business dropped by 5%.

In its 10-Q filing with the SEC, the company blamed this year-on-year decline on 2024 boasting a stronger “first-party content performance”. Speaking to investors, chief financial officer Amy Hood said that this was “below expectations” and “driven by first-party content”.

It’s unclear which first-party releases disappointed, but Microsoft’s Activision subsidiary has changed its release strategy for Call of Duty, and data provided to GamesIndustry.biz suggests there has been a considerable decrease in the shooter franchise’s player base in the last year.

Xbox hardware also disappointed, with revenue declining 32% year-on-year on the back of weaker console sales.

Speaking to investors, Microsoft chief executive officer Satya Nadella tried to project optimism about the company’s games business.

“In gaming, we are committed to delivering great games across Xbox, PC, cloud, and every other device,” the CEO said.

“And we saw record PC players, and paid streaming hours on Xbox.”

Looking towards Q3 – the three months ending March 31st, 2026 – Microsoft is forecasting yet another year-on-year decline in Xbox content and services revenue, as well as its hardware business.

During its Q2 period, the company released the ROG Xbox Ally hardware. The handheld “exceeded expectations”, according to Asus, with whom Microsoft partnered for the tech.

The company also confirmed that work on its “next-generation hardware” is underway.

The head of Xbox Game Studios, Craig Duncan, recently said that the company wants to be “more consistent” in launching more titles on PlayStation 5.