This will probably anger game developers and gamers. Microsoft reported strong fiscal-fourth-quarter revenues of $90 billion, up 18% from a year earlier.
Analysts had expected $87.6 billion, and Microsoft shares are up 3% in after-hours trading. Earnings per share came in at $4.74, above the analyst expectation of $4.24 a share on an adjusted basis.
Net income was $35.8 billion, or $4.81 a share on a GAAP basis, up from $27.2 billion, or $3.65 a share a year ago. The company said it had lower costs than it expected for its voluntary retirement program. And it reported an impairment charge for the Xbox business, which in early July (after the close of Q2) laid off 1,600 employees, said it would lay off 1,600 more in the coming year, and would spin out five game studios.
The company said it incurred severance expense and impairment charges at Xbox, which saw revenues of $4.98 billion, down 10% from a year ago. The layoffs were the deepest cuts in gaming that Xbox has had, even after four layoffs in the past three years, and they have been deeply unpopular in the game industry. But Microsoft is far from being along in having to lay off staff after expanding dramatically a few years ago.
Xbox content and services revenue decline 10% in Q4 FY26 copared to a year earlier, with strong first-party content performance. And Xbox hardware revenue was down 13% to $234 million from a year ago.
Azure growth was up 43%, with revenue in the 2026 fiscal year exceeding $100 billion.
The Xbox breakout in the earnings report noted that revenues have been declining for four quarters in a grow. Revenues were down for total gaming to $4.98 billion in the most recent quarter (Q4FY26 ending June 30), down 10% from a year earlier. Revenues for gaming were down 7% in FYQ3, down 9% in Q2FY26, and down 2% in Q1FY26. Content services saw a similar slide, though revenues were up 1%A in Q1FY26.
In its 10K filing, Microsoft said, “We are identifying new opportunities to attract gamers across a variety of different end points through our first- and third-party content and business diversification across subscriptions, ads and digital stores. We’ve seen new devices from third-party manufacturers along with key PC and mobile end points that help us empower gamers to play in a way that is most convenient to them. We are focused on growing the platform and expanding to new ecosystems to engage as many gamers as possible.”
In an earnings call, CEO Satya Nadella said Microsoft finished the year strong thanks to AI demand. He noted the company added 31 data centers across the world in the past fiscal year, bringing its total to 88.
Annual revenue was up 18% to $331 billion, while Azure revenues was over $100 billion and Microsoft Cloud was $214 billion. By comparison, Microsoft’s Xbox revenues was around $21 billion. During the fourth fiscal quarter, Microsoft added a gigawatt of capacity at its data centers.
Speaking to analysts, Nadella said of Xbox, “Finally, let me talk about devices and consumer. When it comes to Xbox, we are making the necessary decisions required across our content portfolio, platform, and operations to reset the business for long-term growth. We have the best IP in the industry and talented studios around the world, and believe we can bring these trends together and expect to return the business to growth in fiscal 2027.”
Microsoft also said Xbox revenue decreased 10% and 11% in constant currency. Xbox content and services decreased 10% against a prior year comparable that benefited from strong first-party content performance. The Xbox segment gross margin dollars decreased 2% and gross margin percentage increased year over year, driven by lower amortization from the Activision acquisition.
Operating expenses increased 8% and 7% in constant currency, driven by the continued investments in shared R&D noted earlier, as well as impairment charges in Xbox. Operating income decreased 14% and 15% in constant currency, and operating margins decreased overall to 21%.
For the future, Microsoft CFO Amy Hood said Xbox content and services revenue is expected to decline in the mid-single digits. Hardware revenue should decline year over year.