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Spurred by brisk demand for its creative cloud products, Adobe (ADBE) reported strong Q3 results after the close yesterday, handily topping analysts' earnings and revenue expectations. The company's CEO, Shantanu Narayen, characterized the Q3 performance as the best in the company's history.

Looking across ADBE's key metrics, it's easy to understand Mr. Narayen's exuberance.

• EPS jumped by 25% yr/yr to $2.57, beating the consensus estimate by $0.16, representing ABDE's largest EPS beat in over five years.
• The Digital Media segment (72% of Q3 revenue), which houses ADBE's flagship Creative Cloud offering and the Document Cloud business, grew revenue by 19% to $2.34 bln. Given the considerable size of this business, that growth rate is very impressive.
  • Creative Cloud (61% of Q3 revenue) offers a set of cloud-based products for designing, creating, and publishing content, including Photoshop, Illustrator, and Lightroom.
    • Remote working is fueling an explosion in content creation as employees rapidly shift to digital platforms to share workflows and to visually connect with customers.
  • ADBE's Document Cloud business is also experiencing a tailwind from the remote working trend with revenue climbing by 22% to $375 mln.
    • Creating, sharing, and signing digital documents has become vital as employees work from home and as companies sharply cut back on travel.
    • Consequently, demand for ADBE's Acrobat and PDF products has surged.
• To help diversify its business, ADBE has expanded its digital marketing and advertising offerings over the past several years. These offerings comprise the company's Digital Experience segment (~25% of revenue), which generated subscription revenue growth of 7%.
  • This segment is in the midst of a shake-up as the company winds down its Advertising Cloud offering. The ad platform is a relatively low margin business that has experienced softening demand.
  • The company will instead focus on offering data collection, analysis, and AI-enabled products that allow marketers to optimize digital advertising campaigns.

Despite the impressive Q3 results, shares are trading lower on the session. ADBE's conservative, in-line Q4 EPS and revenue guidance of $2.64 and $3.35 bln, respectively, is the likely culprit.

Expectations were high for ADBE, evidenced by the ~50% year-to-date gain and the lofty forward P/E of 43x. Therefore, the unremarkable outlook provided investors with an excuse to sell the stock.

It's worth nothing, though, that ADBE tends to manage expectations by providing conservative guidance that it can meet or exceed with relative ease. For instance, last quarter the company issued downside guidance for Q3, but ADBE easily surpassed that forecast.

Disappointing guidance aside, ADBE's results were quite healthy, and the company remains poised to continue benefiting from the shift to working-at-home.