Amplitude Inc. (AMPL, Financial) is a digital analytics company that works with a number of major brands, from PayPal (PYPL, Financial) to Canva, Under Armour (UA, Financial) and Atlassian (TEAM, Financial). The business went public in late 2021 on the back of huge excitement and a thriving bull market. This led to a staggering valuation of over $7 billion. Given the company had just a few hundred million in revenue, this was a stretch.
Since that point, the market for growth stocks has corrected downward. Amplitude’s share price plummeted by over 86% between November 2021 and September 2023. Therefore, the stock may now be enticing for investors.
Business model
Amplitude has created a number of behavioral analytics tools that enable companies to track the journey of their customers, collect insights and respond with actions.
Users can be easily segmented across the entire “funnel.” For example, a product marketer can see a split between users which signed up for a free trial and those which ended up purchasing the product.
Personalized recommendations can also be created, which is a proven method of generating increased conversion rates. Further, its Experiment tool is used for A/B testing and continual optimization.
Overall, a platform such as Amplitude is deeply embedded into a businesses tech stack and thus leads to high retention and switching costs.
Solid financials
Amplitude reported solid financial results for the second quarter of 2023. Its revenue of $67.8 million rose by 17% year over year, while its annual recurring revenue jumped 18% year over year to $268 million. This was driven by both new wins and existing customer expansion. Notable names included Cloudflare, Western Union, Beachbody, Alteryx, Carta and TaxJar, as well as airlines and supermarket chains. This is a positive sign as it shows the variety of industries and business types which find value in the platform.
Its total customer count rose to 2,344. The company also saw growth in its $100,000-plus and $1 million-plus customers.
A major highlight was Spin by OXXO, a Mexico-based financial application that offers users mobile payments, cash withdrawals and more. This company has seen major growth, going from zero to 5 million users within a single year. Spin uses Amplitude as its experimental platform and therefore, this is a testament of its ability to scale effectively.
Amplitude did experience some partial churn with its smaller startup segment, which tends to be more volatile given the current economic climate.
Net revenue retention on a trailing 12-month basis declined sequentially to 108%. For the three-month period, NRR was 101%, down from 118% in the prior-year quarter. Gross retention was in the mid-80s.
New product growth
Amplitude reported strong growth for its newer product lines such as its Customer Data Platform and Experiment platform, which surpassed $20 million in ARR.
A CDP enables a company to unify all of its customer data together in one place. This then allows audiences to be segmented and connected via integrations. For example, there may be a cohort of users that have been dormant for a while. They could be “reactivated” through a targeted email or Google ads campaign.
Amplitude’s unique selling propositon is it provides both Analytics and a CDP in a single platform. In addition, it announced to be data warehouse native via Snowflake (SNOW, Financial), which helps with storing data.
New AI features
Amplitude’s customers have a huge amount of big data. Therefore, the company is in a prime position to leverage artificial intelligence.
The business has recently announced two new features. The first is called Ask Amplitude, which enables a customer to query its data easily.
The second is data assistant, which uses AI to help ensure solid governance with regard to data.
Margins and balance sheet
Amplitude reported a strong gross margin of 77.5%, up 3% year over year. This was driven by a restructuring of its customer success department.
Its operating loss was $22.7 million in the second quarter, which was slightly better than the $24.6 million loss reported in the prior quarter. This was driven mainly by a reduction in its sales and marketing expenses, which were $31 million, contributing to 45% of revenue, down from 53% in the prior year.
Its research and development expenses were $12.9 million, contributing to 19% of revenue. The general and administrative expenses were $9.8 million, contributing to 14% of revenue.
Its free cash flow was $19.3 million, a solid 14% increase year over year.
Moving on to the balance sheet, Amplitude reported $319 million in cash and short-term investments as well as minimal debt of $9 million.
Valuation
Amplitude trades with a price-sales ratio of 5, which is cheaper than its historic levels.
Guru interest
In terms of guru investors, Steven Cohen (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies purchased shares in the second quarter. The stock traded at an average price of $10.30 per share during the quarter, which could be an indication of where they see value.
Final thoughts
Amplitude has created a plethora of fantastic products and is known as a leader in the analytics space. I believe the company is perfectly suited to benefit from the growth in AI and rapidly improve its product. Its growth is still solid, but I would like to see a greater improvement in its profitability. Either way, the stock appears to be ideal for a growth stock investor at the right valuation.
