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Adobe (ADBE +15%) is surging following its Q2 (May) earnings report last night. This digital document giant broke its string of six consecutive double digit EPS beats, but it was still nice EPS upside. Revenue rose 10.2% yr/yr to a record $5.31 bln, which also was better than expected with strength across all three clouds.

• Last quarter, the guidance was a problem, but this time, Adobe guided Q3 (Aug) EPS above expectations although revs were a bit light. Adobe also raised FY24 EPS guidance by an amount greater than the Q2 upside, which implies raised EPS guidance for 2HFY24. We think the guidance is reassuring investors and likely primarily responsible for the big move today.
• Its Digital Media segment performed well with revs +11% yr/yr (+12% CC) to $3.91 bln, which was above prior guidance of $3.87-3.90 bln. DM is by far Adobe's larger segment. Adobe's other major segment is Digital Experience, which allows businesses to manage/track customer experiences using analytics. DE segment revenue grew 9% yr/yr (+9% CC) to $1.33 bln, which was at the high end of its $1.31-1.33 bln prior guidance.
• In its DM segment, Adobe exited the quarter with $16.25 bln of Digital Media ARR, up 13% CC. Document Cloud revenue of jumped 19% CC to $782 mln while adding $165 mln of net new Document Cloud ARR, which was a record for a Q2. Document Cloud growth drivers included demand for Acrobat subscriptions across all customer segments and geographies; new user acquisition from increasing Reader MAU; a great start monetizing AI Assistant; strong usage and engagement from Acrobat Web etc.
• Within DM, Creative revenue was $3.13 bln, up 10% yr/y or +11% CC. It also added $322 mln of net new Creative ARR in the quarter. Q2 Creative growth drivers include new subscriptions, with particular strength in digital acquisition on adobe.com thanks to multiple product releases during the quarter. Adobe is seeing accelerating interest and usage for its new Express mobile and Express for Business offerings. The company is pleased with the performance of the Creative business in 1H, fueled by strong commercial subscriptions in both Q1 and Q2.
• Digital Experience growth drivers in Q2 included subscription revenue strength from transformational accounts; market leadership with AEP and native applications, with subscription revenue growing 60% yr/yr etc. Adobe also saw subscription revenue strength across the Data Insights & Audiences and Customer Journey categories as well as accelerated adoption of its AEM and Workfront offerings.

Overall, there was a lot of negativity priced into Adobe shares coming into this report. We think the guidance last quarter spooked investors. Adobe shares have significantly underperformed other tech names in recent months. We think the bullish EPS guidance for Q3, coupled with a pretty large FY24 EPS increase is fueling today's move, especially given the negativity priced in. Also, while we do not have a consensus for ARR, that metric was a hot topic on last night's call. As such, we think analysts are impressed with the ARR results and guidance. That seems to be pushing the stock as well.