Amplitude (AMPL) is a market leader in providing customer product analytics. Amplitude’s products help enterprises make data-driven decisions to optimize products and sales.
In late September 2021, the company went public via a direct listing. The stock rocketed to over $87 per share at one point but is now almost 50% lower. Has this stock now reached the buy zone?
I am neutral on AMPL stock.
What Amplitude Offers
Three significant products are offered by Amplitude. They are Amplitude Analytics, Amplitude Recommend, and Amplitude Experiment.
Amplitude Analytics allows a company to view data regarding the behavior of end-users of its products. This data is often used to increase conversion and retention rates and general product insights.
The second platform, Amplitude Recommend, helps customers increase customer engagement by using data to improve personalization based on user behavior. This platform can recommend the best ways to alter a product to maximize effectiveness.
Finally, Amplitude Experiment takes user data and embeds it in test products. By using this, teams can better predict the results of product rollouts and make minor tweaks that can pay off significantly. Each platform offers what many companies of today are looking for, data-driven insights to maximize returns.
By the Numbers
Amplitude has several advantages to its business model. First, over 95% of revenue is recurring. This is a crucial feature of the software-as-a-service (SaaS) model. It provides predictable revenues that generally increase over time as new customers come on board and current customers spend more through upselling.
The company also has a solid gross margin. In Q3 2021, revenue reached a record $45.5 million, while gross profit came in at $31.5 million for a gross margin of near 70%. Typically, a high gross margin indicates a company’s ability to scale to net profits.
The $45.5 million top-line revenue represents an increase of 72% over the same period in 2020. This is remarkable growth. Even better, growth appears to be accelerating as Q2 2021 revenue was up 66% over Q2 2020.
The company is also increasing its paying customer base, including customers who spend more than $100,000 and $1 million annually.
As of H1 2021, Amplitude reported 1,280 total paying customers. Of these, 311 provided more than $100,000 in annual recurring revenue (ARR), and 22 provided over $1 million in ARR. These figures are up significantly from 2020, which saw 1,039 paying customers total, with 262 providing over $100,000 ARR and 15 contributing $1 million ARR.
So, why is the stock down about 50% from its highs? Simple, the valuation got ahead of the fundamentals. The stock currently has a market cap of about $5 billion. This puts the forward (December 2021) price-to-sales ratio above 29.
Growth stocks have also been negatively affected by a hawkish Federal Reserve concerned with rising inflation. The Federal Reserve appears ready to move on interest rate hikes shortly. While the business should continue to thrive, the stock may have further to fall.
Wall Street’s Take
Turning to Wall Street, analysts are somewhat bullish on Amplitude stock, with a Moderate Buy consensus rating based on four Buys, three Holds, and no Sells.
The average Amplitude price target of $81.00 implies 77.9% upside potential.
Looking to 2022
After blasting off initially, Amplitude stock finished 2021 on a sour note, and the downtrend has continued into 2022. The company’s platforms are innovative and have tons of potential. The financial results are also quite impressive. Unfortunately, macroeconomic headwinds aren’t favorable to growth stocks, and the valuation is not attractive at this time.
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