Microsoft on Wednesday beat sales and profit expectations, powered by sharp demand for its Teams chat and online meeting app and Xbox gaming services as the world shifted to working and playing from home.

The company today announced the following results for the quarter ended March 31, 2020, as compared to the corresponding period of last fiscal year:

• Revenue was $35.0 billion and increased 15%
• Operating income was $13.0 billion and increased 25%
• Net income was $10.8 billion and increased 22%
• Diluted earnings per share was $1.40 and increased 23%

The results benefited from sales of its Windows operating system and Surface hardware devices as people upgraded personal computers to work or study from home. Microsoft also cited all-time-high engagement on its Xbox Live gaming service, with 19 million active users.

Microsoft also benefited from strong demand for its Teams collaboration software, which Nadella said on a conference call now has 75 million users and competes with Zoom Video Communications Inc and Slack Technologies Inc. The demand influx strained Microsoft’s data centers, forcing it to limit new cloud customers’ usage and prioritize healthcare and government users.

Segment Highlights

Revenue in Productivity and Business Processes was $11.7 billion and increased 15% (up 16% in constant currency), with the following business highlights:

• Office Commercial products and cloud services revenue increased 13% (up 15% in constant currency) driven by Office 365 Commercial revenue growth of 25% (up 27% in constant currency)
• Office Consumer products and cloud services revenue increased 15% (up 17% in constant currency) with continued growth in Office 365 Consumer subscribers to 39.6 million
• LinkedIn revenue increased 21% (up 22% in constant currency)
• Dynamics products and cloud services revenue increased 17% (up 20% in constant currency) driven by Dynamics 365 revenue growth of 47% (up 49% in constant currency)

Revenue in Intelligent Cloud was $12.3 billion and increased 27% (up 29% in constant currency), with the following business highlights:

• Server products and cloud services revenue increased 30% (up 32% in constant currency) driven by Azure revenue growth of 59% (up 61% in constant currency)
• Enterprise Services revenue increased 6% (up 7% in constant currency)

Revenue in More Personal Computing was $11.0 billion and increased 3% (up 4% in constant currency), with the following business highlights:

• Windows OEM revenue was relatively unchanged year over year
• Windows Commercial products and cloud services revenue increased 17% (up 18% in constant currency)
• Search advertising revenue excluding traffic acquisition costs increased 1%
• Xbox content and services revenue increased 2%
• Surface revenue increased 1% (up 2% in constant currency)

Despite thee high sales for cloud services, Azure growth slowed to 59% from 62% in the second quarter, which company officials said was a result of how large the business has become.

Microsoft said revenue for its “commercial cloud,” a combination of Azure and the cloud-based versions of software such as Office, rose 39% to $13.3 billion.

The business’ gross profit margin, a key measure of cloud profitability that Microsoft has told investors it expects to improve, was 67% versus 63% last year.

Microsoft also said capital expenditure was $3.9 billion, up from $3.4 billion a year earlier and less than the $4.5 billion the previous quarter.

Revenue in the Intelligent Cloud segment, which includes Azure, rose 27% to $12.28 billion.

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft. “Our durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”

“In this dynamic environment, our sales teams and partners executed a solid third quarter, with Commercial Cloud revenue generating $13.3 billion, up 39% year over year," said Amy Hood, executive vice president and chief financial officer of Microsoft. “We remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”

The company is also still “on track” for its planned launch of a new generation of Xbox game consoles this holiday season.

For the fiscal fourth quarter, Microsoft gave business-unit forecasts that were below estimates, predicting tough times for LinkedIn and some small-business software sales.

“Ultimately, Microsoft is not immune from what is going on broadly in the world in terms of GDP growth,” Nadella said on a conference call with investors.

During an analyst call, Microsoft executives declined to specify when they would start charging Teams customers on free trials.

Fourth-quarter forecasts:

• For the quarter ending in June, Microsoft said sales in the More Personal Computing unit will be $11.3 billion to $11.7 billion.
• Productivity division revenue will be $11.65 billion to $11.95 billion.
• Intelligent Cloud division revenue will be $12.9 billion to $13.15 billion.
• For the year that starts July 1, Microsoft said the company will continue to “aggressively expand” cloud infrastructure and keep up “significant investment” in its strategic priorities.