What happened
Shares of Amplitude (AMPL -2.12%), the cloud software company focused on digital optimization, were tumbling last month after the newly public company trimmed its 2022 revenue growth guidance in its fourth-quarter earnings report.
According to data from S&P Global Market Intelligence, the stock finished the month down 45%. As you can see from the chart below, the stock fell off a cliff after its earnings report came out on Feb. 16, and it only modestly recovered those losses over the rest of the month.
So what
High-priced tech stocks had already been getting hit hard in the run-up to Amplitude's fourth-quarter earnings report as market sentiment has been shifting due to fears over rising interest rates. That prospect makes unprofitable companies less valuable and has squeezed valuations across the board.
Image source: Amplitude.
That headwind may have contributed to the stock's plunge on Feb. 17 when it fell 59%. The fourth-quarter results themselves were solid, as the company beat estimates on both top and bottom lines. Revenue jumped 64% to $49.4 million, ahead of estimates of $47 million. Its customer count increased 54% to 1,597, and its net retention rate was 123%, meaning existing customers increased their spending on its software by 23%. The company's adjusted loss per share widened from the year-ago quarter to $0.05, but that was still ahead of estimates of a loss per share of $0.08.
However, the company's guidance for 2022 is what shook investors. After earlier forecasting revenue growth of at least 40%, Amplitude is now calling for growth of 35% to 40%, noting that there was some uncertainty around the timing of customer expansions, which led to the slightly lower guidance. Management also said that some growth may have been pulled forward by Covid.
Still, that guidance seemed to cause the market to lose confidence in the company, especially since it was only Amplitude's second earnings report since going public.
Now what
Amplitude stock had been looking pricey for much of its history since it went public through a direct listing in September 2021, but the stock now trades at a price-to-sales ratio of just 9 based on this year's expected revenue.
Amplitude's future still looks bright. The company is the leader in digital optimization, helping companies analyze their digital product data to make better decisions and grow revenue more efficiently. Adoption is spreading beyond tech companies into sectors like automotive and financial services, and Amplitude should also benefit from the decline of third-party marketing data thanks to Apple's ad-tracking restrictions and Alphabet-owned Google's plan to ban third-party cookies from Chrome. With the software stock down by 50% since it went public, the sell-off looks like a good buying opportunity.
