Microsoft announced Monday it will cut 3,200 jobs in its Xbox division and sell or spin off several game development studios, according to a memo from Xbox CEO Asha Sharma to staff. The restructuring includes 1,600 layoffs this week and 1,250 more over the rest of the fiscal year that began this month. The Wall Street Journal reported that Microsoft's Game Pass subscription service has about 30 million subscribers, well below the company's internal target of around 77 million for this year, citing a person familiar with the matter and a document from Activision acquisition legal proceedings. Sharma stated in her memo that Game Pass "did not grow at the pace we expected." The announcement comes as MSFT stocks are down 20% year-to-date, marking the worst first-half performance since 2000 among the Magnificent Seven stocks.
Game Pass Subscriptions Fall Short of Internal Target
Microsoft projected Game Pass subscriptions would reach around 77 million this year, according to a document revealed during legal proceedings related to the Activision acquisition, the Wall Street Journal reported. The service currently has about 30 million subscribers, according to a person familiar with the matter cited by the journal. The job cuts represent about one-fifth of the Xbox division's total headcount.
Microsoft to Sell or Spin Off Five Game Studios
Microsoft is selling or spinning off four game development studios and exploring strategic options for a fifth, according to reports. The affected studios include Ninja Theory, Undead Labs, Double Fine, Compulsion Games, and Arkane Studios.
MSFT Stocks Down 20% Year-to-Date
MSFT shares fell 23% in the first six months of the year, marking the weakest showing among the Magnificent Seven stocks in the first half. Year-to-date, MSFT stocks are down 20%, compared to 10% gains in the benchmark S&P 500 index. Microsoft shares gained 0.6% in overnight trading ahead of early Tuesday. The company has come under pressure amid a broader selloff in software stocks, hefty capital spending plans, and intensifying competition in AI from Google, Anthropic, and OpenAI.
Microsoft's Layoff History Since 2023
Microsoft announced in June 2025 it would eliminate 6,000 roles, or about 4% of its workforce, primarily across product and engineering teams. The company conducted significant workforce reductions in 2023 and 2024, along with smaller targeted cuts thereafter. Earlier this year, Microsoft announced a voluntary retirement program. About 7% of Microsoft's 125,000 U.S. workforce, or nearly 9,000 employees, was eligible, according to Business Insider. About one-third of eligible employees took the buyout, in line with expectations, according to the report.
Retail Traders Express Frustration
On Stocktwits, retail sentiment for MSFT was 'neutral' as of early Tuesday, down from 'bullish' over the extended weekend. One trader questioned: "Will Microsoft be the first big casualty of the AI bubble?" Another wrote: "$NFLX $ORCL $MSFT these will not see high again any time soon." Some investors believe the recent pullback in high-flying chip stocks could benefit Big Tech as capital rotates back into the segment. "$MSFT AI stocks collapsing. Maybe some of that money will rotate into this," a trader said.
FAQ
How many jobs is Microsoft cutting in its Xbox division?
Microsoft will cut 3,200 jobs in its Xbox unit, with 1,600 layoffs this week and 1,250 more over the rest of the fiscal year that began this month, according to Xbox CEO Asha Sharma's memo to staff on Monday. The cuts represent about one-fifth of the division's total headcount.
Why is Microsoft restructuring its Xbox division?
The Wall Street Journal reported that Microsoft's Game Pass subscription service has about 30 million subscribers, well below the company's internal target of around 77 million for this year. Xbox CEO Asha Sharma stated in her memo that Game Pass "did not grow at the pace we expected."
