Microsoft has announced its earnings for the first quarter of the fiscal year 2026. Unsurprisingly, Xbox console sales took a huge hit in the previous year.
Microsoft said in its Q1 2026 earnings call, that it had earned a total of $77.7 billion in revenue up by 18% year-over-year, and its net income was $30.8 billion (up by 12%).
Its earnings from Windows and Devices increased by 5%, or $222 Million, compared to the previous quarter. The revenue from Windows OEM and Devices increased by 6%, and 18% of Windows OEM growth. The Redmond company attributed this to the demand (new computer purchases) ahead of the end of support of Windows 10. It did see a decline in Devices, though it's unclear what these were.
Microsoft also raked in a cool $472 million in revenue from Search, and news advertising, which was a 15% increase for this quarter. It said that this revenue excluded traffic acquisition costs, and that the increase was driven by a higher search volume, and its partnerships with third-parties. This is probably related to its partnership with OpenAI to use GPT in Copilot.
Speaking of which, OpenAI announced a couple of days ago that it had restructured its business. CNBC reports that the nonprofit organization now has $130 billion in equity in its for-profit arm. During this announcement, it revealed that Microsoft holds a 27% stake in the company, which is 1% more than the nonprofit arm of OpenAI (it has 26%).
Anyway, back to Microsoft stuff, the company's gaming revenue decreased by $113 Million, which was 2% driven by a decline in Xbox hardware. Xbox hardware revenue decreased by 29% year-over-year due to lower volume of consoles sold. It's worth noting that Microsoft hiked the price of the Xbox Series X/S consoles around the world in May. This was followed by a second price increase in the U.S., in September.
For reference, here are the Xbox prices (after 2 increases in the U.S.), with the original launch prices mentioned in parentheses
- Xbox Series S 512GB - $399.99 (up by $100 from $299.99)
- Xbox Series S 1TB - $449.99 (up by $100 from $349.99)
- Xbox Series X Digital - $599.99 (up by $150 from $449.99)
- Xbox Series X - $649.99 (up by $150 from $499.99)
Microsoft had explained that it had increased the prices due to macroeconomic pressures and tariffs. Translation: tariffs and inflation. This is not the first drop in Xbox sales, it was down by 22% in the previous quarter (Q4 FY25), which ended in June. It had dropped by 29% in the Q2 and Q3 of the previous fiscal year.
Xbox gaming revenue increased by 1% year over year in Q1 FY26, thanks to Xbox Game Pass and third-party games. It admitted that first-party content saw a decline. That's unsurprising, considering the lack of a new game aside from Grounded 2. The increase in gaming revenue could also be due to some older Xbox games being released on PlayStation, which is a good thing in my opinion. Microsoft also increased the price of Game Pass subscriptions recently, so that may also play a major role in its revenue.
On a side note, Microsoft has released Indiana Jones and the Great Circle, and its DLC on GOG. It's always nice to have a DRM-free option. Can't say that about Doom: The Dark Ages, which has a DRM in it.
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