Summary
- Amplitude's 4Q22 revenue was slightly above guidance but lower than its historical trend of beating guidance.
- Despite the macroeconomic headwinds, AMPL stock is making adjustments to weather the storm.
- Despite short-term challenges, I am optimistic about AMPL's long-term potential in the emerging market category of using data to build digital products.
Summary
I believe Amplitude ( AMPL ) is still a buy today. The original thesis stands, in that successful businesses of the future will have to fully embrace digitalization. With AMPL's Digital Optimization System, processes are streamlined, and digital outputs can be directly correlated with real-world outcomes. AMPL's platform connects scattered groups for streamlined business analysis and speedy decision making.
4Q22 results
While AMPL's 4Q22 revenue was above the midpoint of guidance, it lagged behind the company's historical trend of outperforming expectations by 4% in recent quarters. In addition, AMPL only gained 81 new customers, which is significantly lower than the norm. The NRR (net retention rate) figure has gone down to 119% LTM from 120+% in the previous few quarters. As for guidance, given the nature of AMPL's business model, I believe that the company's exposure to digital native customers has become a headwind, in that it has slowed the company's near-term revenue growth to the guided 21% in FY23 from 42% in FY22. The reason is, I believe, while this demographic of digital natives enjoyed strong growth during the covid period (FY20/21), they are now under the greatest stress from spending cuts and staff reductions.
Despite the macroeconomic headwinds that AMPL is going to experience in the near future, I continue to be optimistic about the long-term opportunity because businesses are still in the very early stage of using data to build digital products more efficiently. That's why it gives me hope to see AMPL making adjustments in the following areas today so it can weather the coming storm and come out of it stronger. By streamlining the pricing model for Monthly Tracked Users, AMPL has made its services more accessible to small businesses, and the structural reduction in data costs has made it simpler for all customers to expand. Aside from that, I appreciate that AMPL is doubling down on innovation by expanding the availability of new products like Experiment, enhancing the penetration of existing ones, and introducing new features for industries outside of technology and product development. AMPL has also increased the efficiency with which it generates demand by enhancing communication between its marketing and sales departments. More strategic alliances and larger deals have been landed thanks in part to the newly implemented Executive Sponsor Program.
Given all the initiatives AMPL is pushing through, I am generally optimistic and optimistic about the company's future. Yet, I anticipate the current macro environment to remain a headwind to revenues in the near future. To counteract this, management is exercising greater cost discipline, which is encouraging because it has the potential to lead to improvements in structural margins. It is certainly encouraging to see AMPL being able to recover from its weak top line by instituting a more streamlined business model. Net-net, A more profitable operating structure and a reacceleration of revenue growth are both on the horizon for the company after FY23, but I'll wait until I see a sustained uptick in demand in this emerging market segment before considering sizing up the position.
Metrics to monitor
NRR
This is a crucial indicator to keep an eye on because it reveals information about AMPL's up-sell capabilities, which in turn affects growth. There was a slight decline in NRR from the previous quarter, when it was at 123%, and this is a trend that is anticipated to persist throughout FY23. According to management, the lack of growth is the biggest factor influencing the metric, followed by churn and contract value reduction as volumes are reduced. Regarding churn, it is encouraging to hear that management is feeling confident about their market leading position. In addition, with an eye toward the future, AMPL is working to aid customers in weathering the storm of budgetary uncertainty caused by the current macro disruption, all while laying the groundwork for future expansion with the company.
Customers add
AMPL finished 4Q22 with 1,994 customers, an increase of 81 from the previous quarter. This is an increase from 3Q22 of 77, but it's still below the 1H average of 120, so that's something to keep an eye on. Its customer base includes 480 customers with ARR of $100K or more. New bookings in the fourth quarter were split evenly between land and expansion, but management noted that customer caution rose and the company saw more deals delayed than in the 3Q due to increased budget scrutiny. As an investor, I will keep an eye out for any signs of a leveling off in the growth rate of net additions.
Billings
One more metric to keep an eye on is billings, though it is of lower quality. AMPL's billings remain unstable because customers have the flexibility to choose the renewal quarter. This complexity affects how consensus model AMPL future growth as it is complicated by a number of factors, including billings noise and divergence in growth rates compared to other leading metrics like cRPO. It is crucial to keep an eye on this metric because it could cause widespread unease if it were to decrease rather than rise.
Conclusion
In conclusion, while AMPL's 4Q22 results were not as strong as expected, I still believe that AMPL is a buy today. However, the company is facing headwinds due to the current macroeconomic disruption, and this has slowed its near-term revenue growth. Despite this, I remain optimistic about the long-term opportunity for AMPL because businesses are still in the early stage of using data to build digital products more efficiently.
For further details see:
Amplitude: Remain A Buy Despite Near-Term Macro Weakness