Amplitude - AMPL

Investment Analysis Clubs Saul’s Investing Discussions
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Today, Amplitude will begin trading via a direct listing. It just hit my radar. I have no position, but it looks interesting.

Amplitude provides data analytics software that allows firms to better understand their customers’ behavior.

Revenue growth looks good
2019 - $68M
2020 - $102M (50%)
2021 Estimate - $160M-$162M (57% - 59%)(First six months was $68M)

Net Revenue Retention rate is 129%

AMPL has more than 1200 customers; 311 of these create more than $100K annual recurring revenue and 22 of them create more than $1M ARR.

In Q2, the company reported 51% yoy growth in the number of customers.

Customers include older established companies, such as Ford and Walmart, and newer firms such as instacart and Atlassian.

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One thing I am wondering about that perhaps smarter people on this board can help me with: Lists of Amplitude’s competitors include google analytics, adobe, and plenty of companies I am unfamiliar with. These lists do NOT include datadog, though. The two businesses sound similar to me. Are they really not competitors?

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Datadog is focused on ‘system telemetry’ logging and observability inside of systems and infrastructure. Think – how is my system performing, how is each component service performing, where are potential anomalies and where are potential cyber attack points?

Amplitudes is ‘customer telemetry’ and customer upsell – where are my customers clicking, what ‘user journey’ do they go on, and where are my opportunities to sell/upsell? So users would be marketers and user experience groups.

Just my take.

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The best way I can explain Amplitude compared to all the other analytics packages that people have heard of is that it goes far beyond simple website measurements. Google Analytics, just tracks events that happen on your website. Yes, you can extend to a mobile app, and there are hacks to go a bit further, but it was intended for website measurement. A/B testing and cohort analysis are actually very hard to do in Google Analytics for example.

If you look at the partnership page on Amplitude you can see they integrate with a number of products. They allow for a lot more data sources to provide a more complete picture of what is happening.
https://partnerships.amplitude.com/English/directory/

Amplitude is focused on improving the overall product experiences. There is an entire new category of tools that are true product optimization going far beyond simple analytics. There are two companies I know of in this space one is called Heap and the other is UnitQ.

As for this as a stock, I don’t see how this has a huge TAM? It’s a niche product. One that’s very interesting, but it’s not a must-have. It may be growing fast now, but I am very concerned that everyone and their grandma who is going public right now is inflating their numbers and trying to exit while the market is on fire. Will the strong growth continue or accelerate for Amplitude? I don’t see it.

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Thanks much for your reply. If you don’t mind sharing, why do you see this as a niche market with a small TAM. My understanding (which admittedly could be wrong) is that Amplitude helps companies understand customers and convert that understanding into increased sales. This strikes me as something that practically any company would be interested in. But again, I very well could be missing something.

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Why amplitude has a small TAM:

  1. Lacks uniqueness: It doesn’t do something that a company can’t already do manually.
  2. Inertia: Many will stick with Google Analytics which is free or another system because it’s already set up. What do they gain by switching?
  3. Only measures digital: If my business is selling bicycles it won’t improve my non-digital product.
  4. Innovation: These features will become available on other more popular platforms and lessen the need for Amplitude.
  5. Complex: The setup and maintenance if you integrate lots of channels will be burdensome.

But hey, what do I know.

Management claims the market for their platform in 2021 is $37B, estimated through a simple bottoms-up approach:

  • Segment all businesses globally into cohorts by employee count: 100<; 100 - 1000; and >1000
  • Apply an estimated penetration rate to each cohort
  • Apply an ARR value using internal customer data to each cohort

https://blog.publiccomps.com/amplitude-s-1-teardown/

Good luck,
GC4P

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Amplitude closed today at $54.80 which gives it a market camp of about $7B and EV/S of 43 to FY projected revenue. Pretty costly when looking at its last 8 quarters of revenue. The numbers are good but I don’t know if the stock merits such a high price. GolfCaddy4PLynch has some posts in this thread expressing concern about the company’s TAM and asserting it serves a niche market. I’m not knowledgeable enough to express an opinion about that.


        Q2	Q1'21	Q4	Q3	Q2	Q1'20	Q4	Q3																				
Rev	39	33	30	26	24	22	20	18																					
seq 	19%	10%	14%	11%	6%	11%	11%																							
YoY	66%	48%	50%	45%																	
TTM     129
Gr Pro	27.1	22.9	20.9	18.6	16.5	16.0	14.0	12																	
Gr Mar	69%	69%	69%	71%	70%	72%	70%	69%																							
seq	19%	9%	12%	13%	3%	14%	11%
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I’m not sure comparing Amplitude with Google Analytics is the right comparison. Asked in my quick review of their website they are more closely aligned to Pendo, basically product analytics which is super important and I think has a huge TAM. Think every saas platform or website that has users engaging with it and Amplitude providing insights on which customer journey or feature sets are the best.

I know Pendo has helped my company a lot. I can only imagine if Amplitude is anywhere similar to Pendo, there is huge reach. I think Google Analytics more like web analytics and basic behavioral analytics. Amplitude seems to provide sophisticated insights on customer journeys throughout your web appicstion.

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I dug into this a bit more and looked into the financials and there seems to be a lot to like:

  1. Revenue is accelerating both YoY and QoQ in Q2. Guidance is for 67% in Q3 and 12% sequentially.
  2. Gross Margins are stable around 71%
  3. Total paying customers accelerated in half year periods (since we don’t have all the quarterly data):

1 M Customers
Q4 '19 vs. Q2 '20 vs. Q4 '20 vs. Q2 '21
18.2% / 15.4% / 46.67%

100k Customers
6.73% / 18.02% / 18.7%

Customers
14.3% / 22.96% / 23.2%

  1. NRR is expanding, albeit not as high as other companies we invest in

  2. Operating leverage with operating margins improving 2020 vs. 2019, they noted in their investor day that they are investing a lot in 2021, so operating margins are going down, but sequentially, from Q3 vs. Q3, it goes from -18.8% to -11.4%, so improving.

I’ve spoken with a few people and they say Amplitude is pretty amazing and helps a lot. I think Amplitude is likely just getting started in terms of the acceleration in the business they’re seeing. As noted, Pendo is one of their competitors and they just raised a huge round too. I think Product Analytics has a lot of tailwinds given the importance of the data and optimization insights.

Opened a small position, will re-evaluate in their next earnings.

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Sorry for my short comment but just wanted to highlight that Amplitude recently acquired another company, explaining the accelerating growth. I was also interested until I read about this acquisition in the S-1, the acceleration is not (entirely) organic.

Also see: https://amplitude.com/blog/amplitude-acquires-iteratively

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the acceleration is not (entirely) organic.

They paid $1.725m for acquisitions, net of cash, in Q2 2021. I doubt the acquired revenue is significant.

I’d be more concerned with the worsening operating profit margin in Q2 and similar guidance for Q3.

Cedric

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I got a question or two about Amplitude, which is totally fair, as it was the position I added to most in October. Here’s what I’m seeing.

The company is tiny, but there are a lot of positives.

1. Promising Growth – small base, but appears to be accelerating


Revenue
2019                 18.2   20.1
2020   22.3   23.7   26.4   30.1
2021   33.1   39.3   __*44*__

YoY % growth
2020             45   50
2021   48   66   __*67*__

Sequential % growth
2019                  11
2020   11    6   11   14
2021   10   19   __*12*__

2. Impressive Customers: https://amplitude.com/customers
Amplitude has a lot of high-profile customers, and seeing among them tech companies like Atlassian, Hubspot, and Square, I have confidence that Amplitude is doing something legit. These types of customers recognize quality and won’t pay for something that isn’t valuable.

3. Telling the story well
https://investors.amplitude.com/news-releases/news-release-d…
https://investors.amplitude.com/static-files/70cf6157-cb01-4…
Even though Amplitude has only been public for a month or so and will give their first earnings report on Nov 9, they took the initiative to report on their previous quarter, and included this slide deck. They even gave Q3 guidance! The numbers are easy to follow and the story makes sense. This all checks some important boxes for me with a new company.

Conclusion and Current Beliefs
There’s still a lot I’d like to see confirmed when Amplitude reports next week, but they’ve given us a lot here already! Here’s what I expect for revenue and guidance:

Belief: Amplitude will report revenue of $46.2m or greater (which is at least 75% YoY growth). I believe they’ll do more, but that’s a 5% beat on the 44m high end guide, which I think would be a prudent sandbag. If they do 47 or 48m, even better. (48m would be 82% growth YoY)

Belief: Amplitude will guide for at least 51m for Q4 and 169m for the FY. If they achieve even 46.2m this quarter, 51m is just about 10% more, which is less than their 12% sequential guide for Q3. If there’s any positive seasonality in Q4, these guides could be even better, but guiding for 10%+ sequential growth means they will actually achieve, in a word, hypergrowth.

Bear

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Bear,

When Crowdstrike and Datadog were at this size ($160mn run rate) they were doubling next year, while Amplitude expects to grow 40% next year. Even it’s sandbag it’s way slower than the best ones. Plus their margin is just ok, not particularly as good. Curious why are you still impressed by it when compared to other companies in your portfolio?

Thanks

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When Crowdstrike and Datadog were at this size ($160mn run rate) they were doubling next year, while Amplitude expects to grow 40% next year. Even it’s sandbag it’s way slower

Not necessarily. They grew 18.5% sequentially last quarter. That annualizes to 97%.

Plus their margin is just ok

Gross margin is not the primary thing I look for. Theirs is around 70% which is plenty. Global-e’s sub-40% gross margin is more eye-raising. But revenue is the main driver of returns (because top line growth is the only thing that lifts all the other numbers below).

Bear

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