Microsoft's latest financial results reveal a continued decline in Xbox performance, with console sales dropping by 33% compared to the same period last year. The company's gaming revenue also fell by 5%, underscoring the challenges facing new Xbox boss Asha Sharma.
Financial Overview
In the third quarter of Microsoft's 2026 fiscal year (January to March 2026), gaming revenue declined by 5% year-over-year. This follows a 9% drop in the previous quarter, which was attributed to weak first-party game sales. Chief Financial Officer Amy Hood had warned that the following quarter would not improve, and the latest figures confirm her prediction.
Hood attributed the decline to a 'strong first-party content performance' in the prior year, though she did not specify which titles. Potential candidates include Avowed, which launched in early 2025 but is now considered a flop, and the PlayStation 5 port of Age of Mythology: Retold, which sold only 41,000 copies in its first weeks. Continued sales of Call of Duty: Black Ops 6 and Indiana Jones and the Great Circle may have also contributed to the prior year's figures.
Hardware Sales Plummet
Hardware revenue fell by exactly one-third compared to the same period last year. While Microsoft does not disclose exact sales figures, unofficial estimates place Xbox Series X|S sales at under 34 million units, far behind the PlayStation 5's 100 million. This reinforces speculation that Microsoft may accelerate its next console, codenamed Project Helix, for a 2027 release.
Leadership Challenges
Asha Sharma took over as Xbox boss in February 2026, and her impact has yet to be felt. She has implemented a Game Pass price cut and shared initial details on Project Helix, but the financial results predate her tenure. Sharma acknowledged the struggles in a post on X, stating: 'While we have made progress expanding the business and our margins, player and revenue growth has not yet met our ambition. We know we have work to do to earn every player today and into the future.'
Upcoming Releases and Multiplatform Strategy
Xbox has several key titles planned for 2026, including Forza Horizon 6 in May, Fable in autumn, a Halo: Combat Evolved remake, Gears of War: E-Day, and the next Call of Duty. However, with console sales in decline, these games are expected to rely heavily on PC and PlayStation 5 sales. Fable and the Halo remake will launch day one on PlayStation 5, while Forza Horizon 6 will follow later in the year. Gears of War: E-Day is not yet confirmed for PlayStation 5, but given the remastered original trilogy is already available on Sony's platform, a port seems likely.
The new Call of Duty will also be multiplatform, and without a day-one Game Pass launch, it may perform better than Black Ops 7, which was a sales disappointment that prompted an apology from Activision.
Future Outlook
Rumors of a return to Xbox exclusives are hard to believe, especially given Project Helix's expected high price point—potentially over £1,000. Such a cost would likely limit adoption to hardcore fans, further reducing the potential audience for exclusive titles. Asha Sharma faces a daunting task in turning around Xbox's fortunes, with the next few years critical for the brand's survival.
