Amplitude (AMPL -2.56%), the digital product analytics specialist, keeps building momentum quarter after quarter. The company just reported its third straight quarter of accelerating revenue growth as its platform strategy takes shape following earlier additions of product features like session replay, which allows clients to see how customers move through their websites, and guides and surveys, which let clients add a pop-up bubble to prompt customers as they go through the website.
With the help of those products, Amplitude reported its strongest growth in annual recurring revenue (ARR) in several quarters, up 16% to $335 million, and it had its highest net-new ARR in nearly three years at $15 million, showing that the business is building momentum. Its dollar-based net retention rate in the second quarter was also the strongest it has been in at least six quarters at 104%, showing it's moving past the post-pandemic churn that had hampered its growth earlier in its history.
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On a reported basis, revenue in the quarter rose 14% year over year to $83.3 million, which topped the consensus at $81.3 million. The number of customers with an ARR of $100,000 or more was up 16% to 634.
On the bottom line, Amplitude is also gaining traction. The company reported an adjusted profit of $0.01 per share, up from breakeven in the quarter a year ago, which matched estimates. Better yet, free cash flow in the quarter nearly tripled, jumping from $6.8 million to $18.2 million.
Amplitude's AI playbook
The company made several acquisitions over the last year to round out its platform and launch its new suite of AI agents. It acquired Command AI last October, which laid the groundwork for its guides and surveys product, which CEO Spenser Skates said had the fastest adoption the company has had with a new offering.
It acquired June, another product analytics tool known for AI-powered analysis, last month; Kraftful for its AI-native Voice of Customer product; and Inari, another feedback analytics tool.
Those moves will help beef up Amplitude's talent and offerings as it pushes deeper into AI following the launch of its AI agents in June. Those are currently in beta, being tested by customers, and the company expects to begin selling them later this year.
At an event in June, Amplitude introduced several new AI agents, and according to Skates, two of the most promising are Experiment, which generates a variant of an existing website based on the data Amplitude has, and Insight Generation, which looks at a client's dashboard and generates insights -- pinpointing, for example, a drop in traffic and a remedy for it.
Customer response to the AI agents has been strong so far, and Amplitude shared a demonstration of some of its capabilities, showing that the company has the potential to add significant value for its customers at a time when there's a lot of hype swirling through the AI sector.
The company also got some validation from Forester in its first digital analytics solutions report, rating Amplitude highest in the strength of offering, and it was also rated as a customer favorite, underscoring management's recent efforts.
Is Amplitude a buy?
Third-quarter guidance was also better than expected, calling for revenue of $85 million to $87 million, up 17.3%, showing revenue growth is likely to accelerate again.
Amplitude is still a small company with a market cap of just $1.6 billion, and its revenue growth is already accelerating without the benefit of the new AI agents. Those could be a real difference-maker for the stock as it pioneers the digital product analytics market and takes on legacy providers like Alphabet's Google Analytics and Adobe Analytics.
The building blocks seem to be coming together for Amplitude to thrive. If its growth continues to accelerate and the AI agents take off, the stock could soar.
