While Xbox as a whole has been going through one of the roughest stretches in its history, one studio under Microsoft‘s umbrella is absolutely cooking. Leaked internal emails, verified by Windows Central’s Jez Corden, reveal that Blizzard Entertainment finished fiscal year 2026 as Xbox’s top-performing studio — and the numbers behind that title are genuinely impressive. FY26 marked Blizzard’s third-highest fiscal year for top line revenue in the studio’s entire history, which is saying something for a company that’s been making games since the 1990s.
Blizzard president Johanna Faries sent the email to staff this past week ahead of BlizzCon 2026, which is set to run September 12–13 in Anaheim, California. In it, she celebrated a turnaround that’s been years in the making — and credited two franchises in particular with making it happen.
The Leaked Email: What Faries Actually Said
The email doesn’t leave much to interpretation. Faries stated directly: “In FY26 Blizzard ended the year as the top-performing studio in Xbox’s studios division, and this past year has marked our third highest fiscal for top line revenue in Blizzard’s history.”
She then went further, confirming that FY25 and FY26 represent Blizzard’s first back-to-back years of growth since FY17. That’s nearly a decade without that kind of consecutive momentum — and it’s now been broken by a combination of smart product decisions and a willingness to course-correct on franchises that had been losing ground.
The two IPs she called out specifically: Diablo 4: Lord of Hatred and Overwatch. Both are franchises with complicated recent histories, which makes the turnaround story here even more meaningful. Faries said these two “drove exceptional performance,” with Overwatch delivering its strongest quarter since 2022 — which is significant given how much ground the game had to claw back after the rocky launch of Overwatch 2.
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Diablo 4: Lord of Hatred — The Expansion That Delivered
Released on April 28, 2026, Diablo 4: Lord of Hatred is the second major expansion for the base game, following Vessel of Hatred. It brought a new region, an expanded story picking up threads from the base game, and — most importantly for long-time fans — two brand-new classes. The Paladin returned after years of absence, available to players who pre-purchased the expansion, and joined by the all-new Warlock class at launch.
The expansion built on a strong endgame overhaul that had been rolling out through Diablo 4’s seasonal content, tightening up the loop that had been a point of criticism in the game’s first year. For a franchise that’s weathered its share of controversy over the years — from the always-online requirement in Diablo 3 to the rocky seasonal content cadence early in Diablo 4’s life — Lord of Hatred arriving as a genuine hit is a validation of the direction the team has been pushing.
Diablo has always been one of those franchises where player passion runs incredibly hot in both directions. The fact that Lord of Hatred is now being credited as a major revenue driver for the most successful Xbox studio of FY26 suggests Blizzard got the formula right this time around.
Overwatch’s Comeback: Dropping the “2” Actually Worked
The Overwatch side of this story is arguably the more dramatic one. The game that launched Blizzard into a new era of popularity in 2016 has had a genuinely bumpy decade, and the shift to Overwatch 2 in October 2022 — which converted the game to free-to-play and removed the original loot box system in favor of a battle pass model — created significant backlash from the player base.
The recovery started in 2025, when Blizzard reintroduced the loot box system alongside the new Perk system as part of Season 15’s massive overhaul. That reset the tone of the conversation around the game and brought a wave of returning players back to the roster.
Then in February 2026, Blizzard went all in. At the Overwatch Spotlight event, the studio officially dropped the “2” and relaunched the game simply as Overwatch, marking what it described as the franchise’s first fully connected annual storyline. Season 1: Conquest kicked off on February 10, 2026, and it came loaded — five new heroes available from day one (Domina, Emre, Mizuki, Anran, and Jetpack Cat), overhauled menus and UI, a new faction war meta-event, refreshed competitive rewards, and a promise of ten new heroes across the full year.
The rebrand also introduced dedicated hero sub-roles (Stalwart, Flanker, Tactician, and more), revamped Stadium mode content, post-match voting cards returning from Overwatch 1, and a Nintendo Switch 2 version to expand the game’s reach even further. The whole package was designed to feel like a genuine fresh start rather than just another seasonal update.
Faries’ email confirms that it worked. Overwatch just posted its strongest financial quarter since 2022 — the year Overwatch 2 first launched. Coming within six months of dropping the “2” and going through the rebrand, that’s a remarkably fast turnaround for a game that many had started writing off. Worth noting: part of what reportedly pushed Blizzard to take bolder risks with Overwatch was the explosive launch of Marvel Rivals — Overwatch’s own boss has acknowledged the rival hero shooter’s success prompted the team to stop playing it safe.
What This Means for Blizzard’s Future
Faries’ email is celebratory, but it also looks ahead. She noted that these recent wins will help “shape Blizzard’s future,” though the specifics of what that future looks like remain largely behind closed doors ahead of BlizzCon. Windows Central’s report alongside the leaked emails also noted that Blizzard is actively developing mobile spinoffs for some of its franchises, and that work continues on the next main Diablo project — though nothing has been officially announced yet.
BlizzCon 2026 on September 12–13 is expected to pull back the curtain on at least some of that. Faries wrote in the email: “It’s my hope that the event can shine a light on the work underway at Blizzard, and that it can serve as a powerful springboard into a new era of momentum and excitement behind our mission to bring joy and belonging for communities worldwide.” That reads like someone who has things to show — and given the momentum Blizzard has right now, BlizzCon feels like it could be one of the more exciting ones in recent memory.
Blizzard also operates as a limited-integration entity within Microsoft’s Xbox division — essentially running with a degree of independence from the broader Xbox structure — and the results of that arrangement are now very clearly visible in the revenue numbers.
The Contrast With the Rest of Xbox Couldn’t Be Starker
While Blizzard is riding high, the rest of Xbox is in a very different place. CEO Asha Sharma — who took over from Phil Spencer earlier this year — has described the company as in need of a fundamental reset, and she’s backed that up with some of the most significant structural changes in Xbox’s history.
In July 2026, Sharma announced 3,200 layoffs — roughly 20% of total Xbox staff — with 1,600 roles cut immediately and the rest to follow across FY27. Four studios were either sold or spun out: Ninja Theory, Undead Labs, Compulsion Games, and Double Fine Productions. The layoffs affected developers across Activision, Bethesda/ZeniMax, Blizzard, King, Mojang, and Xbox Game Studios. Sharma’s reasoning was blunt: Xbox had grown into a fragmented organisation with too many independent teams, making alignment difficult and decision-making slow.
The situation at id Software has drawn particular attention, with one developer publicly blasting Xbox leadership for what they described as a fundamental failure to understand the creative process. Microsoft’s broader gaming revenues have declined, Game Pass price hikes cut subscriber numbers significantly, and the company is now focusing investment on fewer, bigger bets — primarily Minecraft, the Elder Scrolls franchise, and its other core IP.
Against that backdrop, Blizzard’s FY26 performance isn’t just a feel-good story for Warcraft fans — it’s genuinely one of the few bright spots in Microsoft’s gaming division at a moment when the company needs them badly. The irony of all this: Blizzard, the studio that arrived as part of the massive and controversial Activision acquisition, is now the one carrying the flag for Xbox’s studios division.
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