Shares of Amplitude (AMPL 1.02%) fell off a cliff today after the company offered weaker-than-expected guidance in its fourth-quarter earnings report.
While Q4 results topped estimates, the company called for revenue growth to slow from 63% in 2021 to 35%-40% in 2022, below the analyst consensus of 41%. That wasn't a big miss, but Amplitude has only been public since September so it has little track record with guidance, which exacerbated the market's reaction.
The stock closed down 58.9% at $17.10.
Image source: Amplitude.
There wasn't anything in the quarter itself resembling a red flag. Revenue jumped 64%. The company saw 78% growth in remaining performance obligations (RPO). Net revenue retention improved from 119% to 123%. And paying customers increased by 54% to 1,597, showing that the company is expanding existing relationships with customers and adding new ones.
In other words, the sell-off in Amplitude stock today isn't about the fundamentals of the business. Rather, it's about the market's own struggles to value it properly, which are even more difficult at a time when market sentiment is shifting away from unprofitable tech stocks due to concerns about rising interest rates.
When a company has a track record of giving guidance and executing on that guidance, it gets more leeway from the market to err from Wall Street estimates. With this earnings report only Amplitude's second as a public company, it doesn't have the same luxury, and investors don't know if the company is being conservative with its guidance or not.
In a an interview with The Motley Fool, CFO Hoang Vuong said the company's approach was to give guidance that it knows it can hit. While he declined to call that "conservative," like most companies, Amplitude wants to avoid falling short of its guidance.
That means that the forecast that has investors rushing for the exits could be nothing more than a fiction. The stock is now down more than 50% from the $35 reference price it chose when it went public, and down two-thirds from the $50 price it opened at on its first trading day. However, the prospects for the company, which is a leader in the emerging digital optimization industry -- helping companies make better product decisions using data -- are essentially the same as they were when the company went public in September, or when the stock peaked above $87 in early November.
With the stock now trading at a price-to-sales ratio of less than 9 based on this year's forecast, investors have an excellent opportunity to grab a piece of a disruptive cloud stock that's crashed mostly because of fear, rather than reality.
