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Amplitude's (NASDAQ:AMPL) Q1 Sales Top Estimates, Stock Soars


Full Report / June 28, 2022
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Data analytics software provider Amplitude (NASDAQ:AMPL) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 46.6% year on year to $53 million. However, guidance for the next quarter was less impressive, coming in at $55 million at the midpoint, being slightly (0.24%) below analyst estimates. Amplitude made a GAAP loss of $22.2 million, down on its loss of $8.26 million, in the same quarter last year.

Amplitude (AMPL) Q1 FY2022 Highlights:

  • Revenue: $53 million vs analyst estimates of $50.8 million (4.36% beat)
  • EPS (non-GAAP): -$0.07 vs analyst estimates of -$0.10
  • Revenue guidance for Q2 2022 is $55 million at the midpoint, 0.24% below analyst estimates
  • The company reconfirmed revenue guidance for the full year, at $232 million at the midpoint
  • Free cash flow was negative $9.59 million, compared to negative free cash flow of $12.2 million in previous quarter
  • Net Revenue Retention Rate: 126%, up from 123% previous quarter
  • Customers: 1,701, up from 1,597 in previous quarter
  • Gross Margin (GAAP): 69.7%, in line with 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 incredible over the last year, growing from quarterly revenue of $36.1 million, to $53 million.

Amplitude Total Revenue

And unsurprisingly, this was another great quarter for Amplitude with revenue up 46.6% year on year. Quarter on quarter the revenue increased by $3.64 million in Q1, which was in line with Q4 2021. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Amplitude is expecting revenue to grow 40.1% year on year to $55 million, slowing down from the 65.6% 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 33.8% over the next twelve months.

Customer Growth

You can see below that Amplitude reported 1,701 customers at the end of the quarter, an increase of 104 on last quarter. That is a fair bit 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 126% in Q1. That means even if they didn't win any new customers, Amplitude would have grown its revenue 26% year on year. Significantly up from the last quarter, 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 69.7% in Q1.

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. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Amplitude's Q1 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 $1.86 billion and more than $300.4 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 that it outperformed Wall St’s revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company currently trades at $16.3 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 7.4x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. We can find things to like about Amplitude and there's no doubt it is a bit of a market darling, at least for some. But we are wondering whether there might be better opportunities elsewhere right now.

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