Adobe (ADBE +15%) is experiencing a significant surge following its Q2 earnings report. Although it broke its streak of six consecutive double-digit EPS beats, the EPS upside was still notable. Revenue rose 10.2% year-over-year to a record $5.31 billion, surpassing expectations with strength across all three clouds.
- Last quarter, guidance was a concern, but this time, Adobe's Q3 EPS guidance exceeded expectations, even though revenue projections were slightly light. Adobe also raised its FY24 EPS guidance by an amount greater than the Q2 upside, suggesting increased EPS guidance for the second half of FY24. This reassuring guidance is likely driving today's stock surge.
- The Digital Media (DM) segment performed well, with revenues up 11% year-over-year (+12% constant currency) to $3.91 billion, surpassing prior guidance of $3.87-3.90 billion. The Digital Experience (DE) segment, which helps businesses manage customer experiences using analytics, saw revenue grow 9% year-over-year (+9% constant currency) to $1.33 billion, hitting the high end of its $1.31-1.33 billion guidance.
- In the DM segment, Adobe ended the quarter with $16.25 billion of Digital Media Annual Recurring Revenue (ARR), up 13% constant currency. Document Cloud revenue increased 19% constant currency to $782 million, adding $165 million of net new Document Cloud ARR, a record for Q2. Growth drivers included demand for Acrobat subscriptions, new user acquisition from increasing Reader MAU, monetizing AI Assistant, and strong usage and engagement from Acrobat Web.
- Creative revenue within DM was $3.13 billion, up 10% year-over-year (+11% constant currency), with $322 million of net new Creative ARR added in the quarter. Q2 Creative growth was driven by new subscriptions, especially in digital acquisition on adobe.com, thanks to multiple product releases. Adobe is seeing accelerating interest in its new Express mobile and Express for Business offerings, with strong commercial subscriptions in both Q1 and Q2.
- Digital Experience growth drivers in Q2 included subscription revenue strength from transformational accounts and market leadership with AEP and native applications, with subscription revenue growing 60% year-over-year. Adobe also saw strong subscription revenue across Data Insights & Audiences and Customer Journey categories, as well as accelerated adoption of its AEM and Workfront offerings.
Overall, there was significant negativity priced into Adobe shares before this report, likely due to last quarter's guidance. Adobe shares have underperformed other tech stocks recently. The bullish EPS guidance for Q3, along with the substantial FY24 EPS increase, is driving today's stock movement. Additionally, analysts are impressed with the ARR results and guidance, which also seems to be pushing the stock higher.
