Amplitude (AMPL)

Data analytics software provider Amplitude (NASDAQ:AMPL) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 10.2% year on year to $80 million. The company expects next quarter’s revenue to be around $81.3 million, coming in 1.3% above analysts’ estimates. Its non-GAAP loss of $0 per share was $0.01 above analysts’ consensus estimates.

Company Overview

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.

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 siloed data.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Amplitude grew its sales at a 17.9% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, Amplitude’s year-on-year revenue growth was 10.2%, and its $80 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 10.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.7% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and implies its products and services will see some demand headwinds.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Amplitude’s ARR punched in at $320 million in Q1, and over the last four quarters, its growth slightly outpaced the sector as it averaged 10.2% year-on-year increases. This performance aligned with its total sales growth and shows the company is securing longer-term commitments. Its growth also contributes positively to Amplitude’s revenue predictability, a trait long-term investors typically prefer.

Amplitude reported 4,000 customers at the end of the quarter, a sequential increase of 125. That’s worse than what we’ve observed previously, but we wouldn’t put too much weight on one quarter given its ARR growth over the last year.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

It’s relatively expensive for Amplitude to acquire new customers as its CAC payback period checked in at 121.6 months this quarter. The company’s drawn-out sales cycles partly stem from its focus on enterprise clients who require some degree of customization, resulting in long onboarding periods that delay delay returns and limit customer growth.

For software companies like Amplitude, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Amplitude’s gross margin is good for a software business and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 74.5% gross margin over the last year. Said differently, Amplitude paid its providers $25.51 for every $100 in revenue.

Amplitude’s gross profit margin came in at 74.7% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Amplitude’s expensive cost structure has contributed to an average operating margin of negative 34.9% over the last year. Unprofitable software companies require extra attention because they spend heaps of money to capture market share. As seen in its historically underwhelming revenue performance, this strategy hasn’t worked so far, and it’s unclear what would happen if Amplitude reeled back its investments. Wall Street seems to think it will face some obstacles, and we tend to agree.

Looking at the trend in its profitability, Amplitude’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Amplitude generated a negative 30.3% operating margin. The company's consistent lack of profits raise a flag.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Amplitude has shown weak cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.2%, subpar for a software business.

Amplitude burned through $9.2 million of cash in Q1, equivalent to a negative 11.5% margin. The company’s cash burn was similar to its $1.14 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business.

Over the next year, analysts predict Amplitude’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 1.2% for the last 12 months will increase to 4.8%, giving it more flexibility for investments, share buybacks, and dividends.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Amplitude is a well-capitalized company with $209 million of cash and $2.08 million of debt on its balance sheet. This $207 million net cash position is 15.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Amplitude provide full-year revenue guidance that slightly beat analysts’ expectations. We were also glad its revenue guidance for next quarter slightly exceeded Wall Street’s estimates. On the other hand, its customer growth slowed. Overall, this quarter was decent. The stock traded up 3.7% to $9.75 immediately following the results.

Updated: July 10, 2025 at 10:27 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Amplitude.

Amplitude’s business quality ultimately falls short of our standards. For starters, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its gross margin suggests it can generate sustainable profits, the downside is its operating margins reveal poor profitability compared to other software companies. On top of that, its low free cash flow margins give it little breathing room.

Amplitude’s price-to-sales ratio based on the next 12 months is 4.9x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $13.89 on the company (compared to the current share price of $13.07).