Xbox is going through one of the toughest periods in its history, and there are still no clear signs of a turnaround. In its latest financial report, Microsoft confirmed that its gaming business continues to struggle, with Xbox Series X|S hardware sales failing to recover and Xbox Game Pass growth falling short of expectations.

Microsoft CEO Satya Nadella is fully aware of the challenges facing the gaming division. Addressing the disappointing results, he acknowledged that Xbox has yet to become a truly profitable business. Even so, he remains optimistic about the brand’s long-term future.

Satya Nadella Admits Xbox Is Still Not Profitable

Earlier this year, reports claimed Microsoft was considering selling or spinning off Xbox. Nadella dismissed those rumors, emphasizing that the company has invested in the brand for more than 25 years and intends to continue doing so until it becomes a sustainable business.

According to the executive, one of Xbox’s biggest challenges has been finding the right way to monetize its gaming ecosystem. Microsoft no longer wants to keep subsidizing the division without seeing meaningful returns, which is why the company’s recent restructuring is focused on improving profitability.

It’s still too early to judge the impact of that strategy, and the latest financial report reflects that reality: growth remains minimal, and the gaming division is still operating below expectations. Speaking after the earnings report, Nadella reaffirmed that Microsoft’s restructuring efforts will continue until Xbox returns to sustainable growth.

While he expressed satisfaction with Microsoft’s overall financial performance—driven largely by cloud services and artificial intelligence—he acknowledged that Xbox remains a different story.

“As it relates to Xbox, we’re making the necessary decisions across our content platform and operations to reposition the business for long-term growth,” Nadella said.

XBOX Satya Nadella

Microsoft Expects Xbox to Recover in the Future

The so-called Xbox “reset” began with massive layoffs affecting more than 3,000 employees. As part of the restructuring, Ninja Theory, Compulsion Games, Undead Labs, and Double Fine were separated from Microsoft and either became independent again or found new owners. Those changes reportedly hurt morale across Xbox’s studios, with many developers concerned about the possibility of additional layoffs.

Despite the difficult situation, Nadella believes Xbox still has the assets needed to recover. He pointed to Microsoft’s portfolio of gaming franchises and development teams as the foundation for the company’s future.

“We believe we have the best intellectual property in the industry and incredibly talented studios around the world,” Nadella said. “By combining those strengths with our new direction, we expect the business to return to growth during fiscal year 2027.”

Whether Microsoft’s restructuring plan will be enough to revive Xbox remains to be seen, but the company is making it clear that it is committed to rebuilding its gaming business rather than walking away from it.