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Amplitude (NASDAQ:AMPL) Exceeds Q2 Expectations, Next Quarter Growth Looks Optimistic


Full Report / August 03, 2022
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Data analytics software provider Amplitude (NASDAQ:AMPL) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 48% year on year to $58.1 million. The company expects that next quarter's revenue would be around $60 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Amplitude made a GAAP loss of $24.5 million, down on its loss of $10 million, in the same quarter last year.

Amplitude (AMPL) Q2 FY2022 Highlights:

  • Revenue: $58.1 million vs analyst estimates of $55.1 million (5.34% beat)
  • EPS (non-GAAP): -$0.08 vs analyst estimates of -$0.12
  • Revenue guidance for Q3 2022 is $60 million at the midpoint, above analyst estimates of $59.4 million
  • The company reconfirmed revenue guidance for the full year, at $234 million at the midpoint
  • Free cash flow of $8.16 million, up from negative free cash flow of $9.59 million in previous quarter
  • Net Revenue Retention Rate: 126%, in line with previous quarter
  • Customers: 1,836, up from 1,701 in previous quarter
  • Gross Margin (GAAP): 70.6%, up from 69% 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 year, growing from quarterly revenue of $39.2 million, to $58.1 million.

Amplitude Total Revenue

And unsurprisingly, this was another great quarter for Amplitude with revenue up 48% year on year. On top of that, revenue increased $5.06 million quarter on quarter, a very strong improvement on the $3.64 million increase in Q1 2022, and a sign of acceleration of growth.

Guidance for the next quarter indicates Amplitude is expecting revenue to grow 31.9% year on year to $60 million, slowing down from the 72.4% 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 29.7% over the next twelve months.

Customer Growth

You can see below that Amplitude reported 1,836 customers at the end of the quarter, an increase of 135 on last quarter. That is a fair bit better customer growth than last quarter and in line with what we have seen in previous quarters, demonstrating the company has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.

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 126% in Q2. That means even if they didn't win any new customers, Amplitude would have grown its revenue 26% year on year. Trending up over the last year, this is a great retention rate and a clear proof of a great product. We can see that Amplitude's customers are very satisfied with their software and are using it more and more over time.

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 Q2.

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. Significantly up from the last quarter, 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's free cash flow came in at $8.16 million in Q2, turning positive year on year.

Amplitude Free Cash Flow

Amplitude has burned through $29.4 million in cash over the last twelve months, a negative 14.2% free cash flow margin. This low FCF margin is a result of Amplitude's need to still heavily invest in the business.

Key Takeaways from Amplitude's Q2 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 $1.65 billion and more than $310 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Amplitude delivered this quarter. And we were also excited to see the company produce free cash flow. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 3.34% on the results and currently trades at $16.7 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 growth is coming at a cost of significant cash burn, and its gross margins aren't as good as other tech businesses we look at.

Amplitude's price to sales ratio based on the next twelve months is 6.7x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. In the end, beauty is in the eye of the beholder. While Amplitude wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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