Xbox Initiatives Fail to Halt Revenue Decline, Analysts Report

Key points

• Xbox CEO Asha Sharma pointed to record sales of Minecraft and World of Warcraft Forever as positives despite a recent revenue decline.
• Circana analyst Mat Piscatella stated that Xbox's new programs, including the disc-to-digital initiative, have had no positive impact on sales or engagement data.
• Piscatella noted that making Gears of War: E-Day exclusive to Xbox did not boost hardware sales, which continue to worsen in the US.
• Removing Call of Duty: Modern Warfare 4 from Game Pass at launch cut daily engagement on Xbox by half, from 28% to 14%, without a clear increase in full-price sales.
• Sharma maintains that supply issues are constraining console sales and expects content and services revenue to grow next quarter, while aiming for profitability by 2027.

Background

Xbox has faced significant challenges recently, including a 2% drop in content and services revenue and a 14% drop in hardware sales in the first quarter. The division underwent major restructuring, including 1,600 job cuts and the transfer of the Halo franchise to Activision. Sharma took over in February 2026 and has denied rumors of a sale, emphasizing a long-term strategy to improve profit margins, which currently stand at 3% compared to 9.9% for PlayStation and 16% for Nintendo.

How outlets are covering it

Wccftech and GameSpot both report on Circana analyst Mat Piscatella's critical assessment of Xbox's recent strategies. Both sources agree that initiatives like the Gears of War: E-Day exclusivity and the removal of Call of Duty from Game Pass have failed to produce positive results in sales or engagement. GameSpot adds context on Sharma's long-term goals, noting she aims to match rivals' profit margins by 2027 and beat them by 2030, while also highlighting the establishment of a new unit called XP to expand Xbox's reach beyond games. Wccftech emphasizes the specific data points regarding the drop in Call of Duty engagement and the lack of impact from the disc-to-digital program. Both sources acknowledge Sharma's defense that supply issues are a factor, but note that the lack of positive impact in the data is a significant concern.

Why it matters

The failure of recent strategic initiatives to reverse declining sales and engagement raises questions about the effectiveness of Xbox's turnaround plan. If the division cannot improve its hardware sales or subscription value proposition, it may struggle to compete with Sony and Nintendo, especially as it approaches the holiday season. The gap between Sharma's long-term vision and current short-term results could impact investor confidence and the overall health of Microsoft's gaming division.

What to watch

Microsoft expects content and services revenue to return to growth next quarter. Sharma has set a goal for all studios to return to growth by the end of the fiscal year ending June 2027. The division will continue to monitor the impact of its initiatives, including the new XP unit and changes in China, while facing ongoing challenges with supply and competition.