Xbox delivers record monthly active users, but hardware revenue is still in decline
Xbox hardware revenue remains in decline, but Microsoft said it set new records for monthly active users (MAUs) on Xbox during Q3 FY26.
As noted in the company's latest fiscal report, Gaming revenue decreased by $380 million year-on-year—representing a 7 percent decline over that period. That decrease was driven by tumbling Xbox content and services and Xbox hardware revenue.
In a supplemental SEC filing, Microsoft noted that Xbox content and services revenue decreased by 5 percent year-on-year, while Xbox hardware revenue fell by 33 percent over the same period driven by "lower volume of consoles sold."
Xbox hardware revenue has been in steady decline for some time, but Microsoft is now looking to reposition and revitalize its video game division under new Xbox CEO Asha Sharma.
In a memo sent to global Xbox employees earlier this month, Sharma conceded that Xbox is currently a "challenger" as opposed to a market leader.
During a Q3 earnings call, Microsoft CEO Satya Nadella said the company is currently doing the "foundational work required to win back fans and strengthen engagement" across key businesses, including Xbox.
"In the near term, we are focused on fundamentals, prioritizing quality and serving our core users better," he said. "[...] And you also see this in Xbox where the team is recommitting to our core fans and players, and shaping the future of play. Last weeks Game Pass changes are one example of how we are staying responsive to customer feedback."
Nadella was referencing the recent decision to lower the price of some Xbox Game Pass tiers. That move came just months after Microsoft chose to increase the cost of the subscription service.
Sharma recently told Xbox workers that daily active players will be the division's "north star" moving forward. It appears the company is already making progress on that front.
"We set new records for monthly Xbox active users in the quarter, as well as game streaming hours," said Microsoft CFO Amy Hood during the earnings call.
Looking ahead to Q4, Hood said Xbox revenue is expected to remain in decline across the board.
"In Xbox content and services, we expect revenue to decline in the low-teens, reflecting a prior year comparable that benefited from strong first-party content, as well as the recent price changes for Xbox Game Pass as we focus on delivering more value to gamers," she added. "Hardware revenue should decline year-over-year."
