30 Mar Should You Buy the Dip in Amplitude Inc?
Amplitude, Inc. (NASDAQ: AMPL) is leveraging its expertise in Product analytics to help companies achieve digital optimization. The leading-edge analytical tools employed by the company enable an in-depth exploration of customer behaviour beginning from what, why to what next. The easy-to-use interfaces enable easy adoption, while best-in-class security and compliance standards ensure safety and protection of the data.
The Company claims to track 900 billion average monthly customer behaviors and is targeting more than 3 trillion experiences. Amplitude has implemented over 45,000 products and has delivered an average ROI of 655% by mitigating innovation risks, helped achieve a 46% percent increase in conversions and an 80% increase in productivity.
Amplitude, Inc. (NASDAQ: AMPL)
Market Cap: $2.13B; Current Share Price: 19.35 USD
Data by YCharts
Company
The Company’s focuses on the digital optimization of businesses that have transformed their operations through digital transformation. Amplitude seeks to address the limitations of the existing legacy digital transformation tools, which were not built with product-specific data and behavior in mind, and fail to address the increasing complexity of digital offerings. Most importantly, they fail to deliver actionable, real-time insights and can negatively impact customers acquisitions and revenue.
The Company uses an advanced optimization system to deliver valuable insights into products that drive business and help companies make decisions that have the highest impact, be it in terms of marketing campaigns or customer service.
Image Source: Company
The Amplitude Behavioral graph is an intelligent, high performing database that brings together customer and product data to understand their digital journey, predict future outcomes and target desirable behaviors. The system delivers purpose-built databases that can answer any question instantly, predict and track emerging behaviors that can impact growth and provide in-depth analysis of the likelihood of conversions, purchases and churn.
The Company’s product and service offerings encompass Amplitude Analytics, Amplitude Recommend and Amplitude Experiment, besides data management, data connections and technology integrations.
Amplitude has over 1600 customers and caters to 26 of the Fortune 100 companies, which represents a 54% increase YoY. Some of these companies include Atlassian, AbInBev and Ford, GoFundMe, Nerdwallet, Kahoot among others. The Company’s products also feature in solutions offered by Instacart, Intuit, Walmart and BEES (Anhesuer-Busch Inbev). The business model offers both subscription-based as well as usage-based revenue opportunities. The Company’s remaining performance obligations (RPO) grew by 78% to $170 million in 2021.
The Company has been achieving consistent revenue growth, with revenue at $49 million in the Q4,2021 as compared to $45 million in Q3,2021. Amplitude also reported a growth in paying customers, which stood at 1597 in FY2021, as compared to 739 in FY2019. The company also reported 385 customers with more than $100k in ARR in FY2021 as compared to 262 in FY2020. Customers with ARR of more than 1 million grew to 29 in FY2021 as against 15 in FY2020.
The net dollar retention rate of the Company stood at 123% in Q4,2021 as compared to 119% in Q4,2020, which denotes that the existing customers are spending 23% more than a year-ago.
Amplitude is a leader in its category and has been awarded the Best product analytics solution for its category and the third-best software product overall by G2 in its 2022 Winter Report.
Image Source: Company
Weakness
The Company reported a 63% year over year in revenue at $167 million in 2021. However, the revenue guidance for 2022 is $230 million, which denotes a potential growth of 38% YoY. The lower guidance has sent the stock of the Company diving.
The stocks of the Company, which made its IPO debut in September 2021, have fallen by nearly 67% till date. The revision of its growth rates is making investors wary as it signals that the Company cannot keep up the impressive growth rates from a long-term perspective.
Moreover, there is a massive opportunity in the product analytics market, with the phasing out of cookies and decline in use of third-party marketing data. This presents a great chance for the Company to gain a stronghold, as companies look inwards to gather data about customer behavior. However, these changes cannot be made overnight and the Company will have to cautiously wait and watch to capitalize on rising opportunities and that means that investors too have to be patient in their approach.
The Company’s cash flow is currently negative, with nearly $35 million spent in 2021, the burn rate of free cash flow grew by 178% from 2020 to 2021, which could prove to be a risky situation from an investment perspective.
Opportunity
The advent of smartphones, the impact of the pandemic and increasing adoption of cloud storage solutions are compelling organizations to digitize their services to cater to new-age customers who rely greatly on online platforms for their needs. According to a report by IDC, the worldwide spending on digital transformation products and services is likely to reach $2.3 trillion in 2023, growing at a CAGR of 17.1% from 2019 to 2023.
Companies are now using data analytics, to generate actionable insights that will lead to better customer understanding, improved engagement and loyalty. The evolution of technology is also contributing to the rising popularity of digitization, with Artificial Intelligence, Machine learning, IoT and blockchain simplifying the complexities of Digital Transformation.
Data Analytics is bringing about exciting new changes in numerous fields such as agriculture, manufacturing, retail and healthcare to name a few. Many fields stand to gain from the application of meaningful insights provided by machine driven analysis of complex disparate data, available through various sources.
The implementation of machine learning and artificial intelligence is making skimming through large information sources even easier. The evolution of this technology enables companies to use this information for crucial decision-making involving stakeholders, employees and customers.
The emergence of multi-cloud-based technologies results in use of improved computing mechanisms and more affordable storage. Emerging technology such as blockchain also validates the need and relevance of using data analytics for information processing and decision-making.
An increasing number of organizations are now focusing on their digital customer experience which has opened up numerous avenues for marketing communication and customer engagement. However, the most crucial component of any such marketing strategy is the availability of customer data and critical insights into consumption and usage patterns. This information is a literal goldmine and can act as the foundation for a company’s marketing and customer outreach efforts, it can propel cross-channel marketing campaigns, used for customizing mobile solutions and offerings to customer groups and most importantly to promote engagement and loyalty.
According to a report by Markets and Markets, the global product analytics market is estimated to reach USD 25.3 billion by 2026, growing at a CAGR of 21.3%, from USD 9.6 billion in 2021.
Threats
Technology is a constantly evolving field. A breakthrough innovation of today can easily become outdated in a matter of years. To sustain in such a highly competitive environment, companies need to constantly be one step ahead of the competitors in research and development and delivering highly differentiated experiences for their customers.
There is a possibility of a new and better technology emerging in the market, which may render the Company’s technology obsolete. Customers may opt to go with its competitors for their business needs and the Company may fail to acquire new customers or not be able to achieve its targeted growth.
Amplitude faces competition from the likes of Google Analytics, Mixpanel, Singular and Piwik among others.
Increasing concerns about data security and privacy, network vulnerability and challenges with integrating legacy systems with new age systems may hamper the growth and adoption of digital platforms, which could prove detrimental to the Company’s interests.
Key Takeaways
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Click here to please visit our detailed disclosure
References
https://investors.amplitude.com/static-files/f744d8be-01ad-4f62-ab45-92d2bb493625
No Comments