Having just gone public last September, Amplitude (AMPL -2.83%) received a rude awakening when it last reported earnings in February: The stock price plunged nearly 60% after company management slashed its guidance for 2022.
That drop seemed to show that the market doesn't quite know what to make of Amplitude, a fast-growing Software as a Service (SaaS) company that specializes in product analytics. The company's software helps businesses of all stripes better understand customer journeys through first-party data so that they can optimize their digital products. Management sees itself as a pioneer in digital optimization (the step after digital transformation). Once companies have built their digital infrastructure, it only makes sense for them to optimize that, and they need data to do so. It's a new industry and one that's still wide open.
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In its first-quarter earnings report, Amplitude management raised its full-year revenue guidance modestly, but it still expects growth to decelerate over the rest of the year, guiding to $229 million-$235 million, or a 39% increase at the midpoint.
The company beat both its own guidance and analyst estimates across the board. Revenue jumped 60% to $53.1 million, ahead of estimates at $50.8 million, and its adjusted loss was also narrower than expected. Net revenue retention improved to 126%, showing that it grew sales to existing customers by 26%. Remaining performance obligations, or its backlog, were up 84% to $194.4 million, showing that customers are committing to long-term contracts.
Let's take a look at three of the bright spots from the quarter beyond the headline numbers.
1. Experiment product is picking up steam
Amplitude's main product is Amplitude Analytics, but last year it introduced two new products, Recommend and Experiment, and it looks like they are starting to gain traction, in particular Experiment. Amplitude Experiment helped drive expansions for customers like Dropbox, which is using Experiment to run end-to-end product experiences and measure experiments faster. IBM's The Weather Company also used Experiment to test ad placements and optimize its web platform.
Recommend and Experiment have only been on the market for three quarters, so the vast majority of the company's revenue still comes from its Analytics product. But management is encouraged by the growth in its two new products, saying that it was the biggest quarter for Experiment. CEO Spenser Skates added on the earnings call, "As we get into 2023 and beyond ... Experiment can be a big driver from a revenue perspective."
2. Investments are plateauing
Like most fast-growing cloud software stocks, Amplitude isn't profitable. The company has been investing in its growth in areas like research and development, but the company now believes it's mostly finished rightsizing its spending for the size of its business. CFO Hoang Vuong said that the operating loss should bottom out in Q2 when the company holds its annual Amplify conference and that spending should plateau from there. The company aims to improve its operating margin every year, and it is targeting free cash flow margins of 10%.
Adjusted gross margin improved in the quarter from 70% a year ago to 72% as the company moves toward its goal of 75%. With market sentiment shifting against growth stocks and investors hungry for profits, taking steps to profitability will be key for the stock to rebound.
3. It's the sector leader
Amplitude Analytics was ranked No. 1 in product analytics by G2 for the seventh quarter in a row, and it was top-ranked in mobile analytics. Fast Company also ranked the company No. 3 among most-innovative enterprise software companies.
Those accolades show that Amplitude is the leader in product analytics, but it's also a reminder that this is an emerging market. At this point, Amplitude's sales force is more focused on educating customers about product analytics rather than competing against other providers, and the company sees its closest competition as legacy marketing analytics platforms like Google Analytics and Adobe Analytics.
The growth story in product analytics will take years to play out, but Amplitude is well-positioned as the early leader in an addressable market worth $37 billion and growing. While bearish market sentiment could continue to weigh on the stock this year, the long-term opportunity still looks promising.
