Microsoft Corporation (NASDAQ:MSFT) announced a significant restructuring of its gaming division on Tuesday, cutting 268 jobs across Halo Studios and other Xbox teams, and transferring development of the next Halo title to Activision, the publisher it acquired for $69 billion in 2023. The move is part of a broader reorganization aimed at streamlining operations and addressing a persistent decline in gaming revenue.
Shares of Microsoft traded 1.4% lower at $494.80 by 11:35 EDT, after touching an intraday low of $494.22. The stock had opened higher, reaching $508.58 earlier in the session before reversing. The decline in share price, however, cannot be directly attributed to the Xbox announcement, as broader market factors were also at play.
The restructuring, which affects approximately 0.12% of Microsoft's 223,000 full-time employees, spans Halo Studios, other first-party studios, and central management. Xbox content chief Matt Booty communicated to employees that the goal is to operate fewer business units, and that the current reset is roughly three-quarters complete. The changes are designed to improve operational efficiency and focus on key franchises.
As part of the reorganization, Activision will oversee the development of the next Halo title through a dedicated team. Additionally, Activision will take over management of Rare and World's Edge, while Bethesda will absorb Obsidian. King will absorb Microsoft Casual Games, and Playground Games and Turn 10 will merge into a single studio. These changes aim to consolidate expertise and resources to enhance game quality and release cadence.
The restructuring comes as Xbox content and services revenue has shown a steady decline throughout fiscal 2026. Growth has fallen from 13% year-over-year in Q4 FY2025 to 10% in Q3 FY2026, and further to a 10% decline in Q4 FY2026. Constant-currency growth followed a similar trajectory, slipping from 12% to -10% over the same period. More Personal Computing, which includes gaming, generated $12.9 billion in revenue last quarter, down 4% year-over-year, though Microsoft's overall revenue rose 18% to $90.0 billion.
Despite the challenges in gaming, Wall Street remains largely optimistic about Microsoft's broader business. MarketBeat tracks 42 buy ratings, five holds, and no sells, with a consensus price target of $568.29, implying a 14.9% upside from current levels. Analyst targets range from $430 to $870, reflecting the diverse views on the company's growth prospects.
Key analyst ratings as of September 22, 2026 include Cantor Fitzgerald with an Overweight rating and a $608 target, Rothschild & Co Redburn with a Hold and $440 target, Stifel with a Hold and $530 target, and Bank of America with a Buy and $600 target. The wide range underscores that Xbox is not the primary driver of Microsoft's valuation; instead, investors are focused on the company's cloud and AI businesses, with Azure growing 43% in the last quarter.
The restructuring carries both opportunities and risks. On the one hand, Activision's expertise could accelerate Halo's development and improve its release schedule. On the other, deeper cuts could disrupt ongoing projects before any potential revenue benefits materialize. Booty has scheduled an all-Xbox town hall for October 6 to address employee concerns and outline next steps.
Investors will be watching closely to see if Activision can deliver a Halo title that revitalizes the franchise without compromising the delivery of Call of Duty, another key asset. The success of this reorganization will be critical in reversing the downward trend in Xbox gaming revenue and restoring confidence in Microsoft's gaming division.
