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Amplitude (NASDAQ:AMPL) Q3: Strong Sales, Next Quarter Sales Guidance Is Optimistic


Full Report / November 11, 2021
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Data analytics software provider Amplitude (NASDAQ:AMPL) reported Q3 FY2021 results beating Wall St's expectations, with revenue up 72.4% year on year to $45.4 million. Guidance for next quarter's revenue was $46.5 million at the midpoint, 2.7% above the average of analyst estimates. Amplitude made a GAAP loss of $36.5 million, down on its loss of $2.57 million, in the same quarter last year.

Amplitude (AMPL) Q3 FY2021 Highlights:

  • Revenue: $45.4 million vs analyst estimates of $43.5 million (4.36% beat)
  • EPS (non-GAAP): -$0.05 vs analyst estimates of -$0.14
  • Revenue guidance for Q4 2021 is $46.5 million at the midpoint, above analyst estimates of $45.2 million
  • Free cash flow was negative $5.81 million, compared to negative free cash flow of $5.81 million in previous quarter
  • Net Revenue Retention Rate: 121%, in line with previous quarter
  • Customers: 1,417, up from 1,280 in previous quarter
  • Gross Margin (GAAP): 69.2%, down from 70.5% 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 $26.3 million, to $45.4 million.

Amplitude Total Revenue

This was another standout quarter with the revenue up a splendid 72.4% year on year. On top of that, revenue increased $9.29 million quarter on quarter, a very strong improvement on the $3.07 million increase in Q2 2021, and a sign of acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 47.4% over the next twelve months, although estimates are likely to change post earnings.

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 121% in Q3. That means even if they didn't win any new customers, Amplitude would have grown its revenue 21% year on year. Significantly up from the last quarter, this 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 69.2% in Q3.

Amplitude Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

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 $8.13 billion and more than $317.7 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 glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. But investors likely expected more and the company closed the day down almost 12% and currently trades at $76.48 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. We think Amplitude is a solid business. Its revenue growth has been exceptional. And while its growth is coming at a cost of significant cash burn, the good news is its very efficient customer acquisition hints at the potential for strong profitability.

Amplitude's price to sales ratio based on the next twelve months is 14.1x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely things to like about Amplitude and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

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