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Amplitude (NASDAQ:AMPL) Beats Q3 Sales Targets


Full Report / November 02, 2022
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Data analytics software provider Amplitude (NASDAQ:AMPL) reported results ahead of analyst expectations in the Q3 FY2022 quarter, with revenue up 35.4% year on year to $61.6 million. The company expects that next quarter's revenue would be around $63.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Amplitude made a GAAP loss of $22.5 million, improving on its loss of $36.5 million, in the same quarter last year.

Amplitude (AMPL) Q3 FY2022 Highlights:

  • Revenue: $61.6 million vs analyst estimates of $60.1 million (2.36% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.08
  • Revenue guidance for Q4 2022 is $63.5 million at the midpoint, roughly in line with what analysts were expecting
  • Free cash flow was negative $3.88 million, down from positive free cash flow of $8.16 million in previous quarter
  • Net Revenue Retention Rate: 123%, down from 126% previous quarter
  • Customers: 1,913, up from 1,836 in previous quarter
  • Gross Margin (GAAP): 70.6%, up from 69.2% same quarter last year

Born out of a failed voice recognition startup by founder Spenser Skates, Amplitude (NASDAQ:AMPL) is data analytics software helping companies improve and optimize their digital products.

Digital products are at the center of how companies interact with customers. Think DoorDash or Paypal or Dropbox - each of these commonly used digital products are built by product managers who tend to create innovative new product features on what they think the customer wants. Intuition. Gut feel. As a result, digital products often introduce new features and then employ data scientists to create a combination of user surveys and complex behavioral models to answer questions like – What drives more revenue, subscriptions or on-demand purchases? or Why aren’t my free users converting to paid?

The plus side of the massive adoption of digital products is the generation of lots of product data. Amplitude's proprietary Behavioral Graph connects millions of seemingly random events from a single user to identify patterns and derive data-driven insights on how users are engaging with digital products. Product designers can gain insight from the specific actions end users take within digital products and answer important questions, such as where in the purchase journey do users experience friction, what are the top user paths between signup and trial conversion, and which features increase new customer retention.

As a result, Amplitude allows businesses to save money on utilizing a patchwork of data visualization and marketing analytics products by instead having Amplitude provide an all in one solution. Amplitude has the added benefit of accelerating the pace of innovation, effectively allowing strategic product decisions to be made in near real time.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the silo-ed data.

Amplitude’s competitors in the digital optimization space include web and marketing analytics vendors such as Adobe Experience Cloud (NASDAQ: ADBE) and Google Analytics (NASDAQ: GOOGL), along with business intelligence solutions like Salesforce.com’s Tableau (NYSE:CRM).

Sales Growth

As you can see below, Amplitude's revenue growth has been exceptional over the last two years, growing from quarterly revenue of $26.3 million in Q3 FY2020, to $61.6 million.

Amplitude Total Revenue

And unsurprisingly, this was another great quarter for Amplitude with revenue up 35.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $3.48 million in Q3, compared to $5.06 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Amplitude is expecting revenue to grow 28.4% year on year to $63.5 million, slowing down from the 64.3% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 28% over the next twelve months.

Customer Growth

You can see below that Amplitude reported 1,913 customers at the end of the quarter, an increase of 77 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Amplitude Customers

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

Amplitude Net Revenue Retention Rate

Amplitude's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 123% in Q3. That means even if they didn't win any new customers, Amplitude would have grown its revenue 23% year on year. Despite the recent drop this is still a good retention rate and a proof that Amplitude's customers are satisfied with their software and are getting more value from it over time. That is good to see.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Amplitude's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 70.6% in Q3.

Amplitude Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Amplitude burned through $3.88 million in Q3,

Amplitude Free Cash Flow

Amplitude has burned through $17.5 million in cash over the last twelve months, resulting in a negative 7.9% free cash flow margin. This below average FCF margin is a result of Amplitude's need to invest in the business to continue penetrating its market.

Key Takeaways from Amplitude's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Amplitude’s balance sheet, but we note that with a market capitalization of $1.83 billion and more than $306.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We enjoyed seeing Amplitude’s impressive revenue growth this quarter. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But the market was likely expecting more and the company is down 1.13% on the results and currently trades at $14.67 per share.

Is Now The Time?

When considering Amplitude, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although Amplitude is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. Unfortunately, its gross margins aren't as good as other tech businesses we look at, and its customer acquisition costs are higher than we like to see.

The market is certainly expecting long term growth from Amplitude given its price to sales ratio based on the next twelve months is 5.9x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Amplitude doesn't trade at a completely unreasonable price point.

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