Amplitude Earnings Call Question

Hello,

In trying to decide what I want to do with Amplitude I took a careful listen and read of the Earnings Call today. One thing stood out that has concerned me and I would be very curious about your take on it.

In the very first question, the analyst referenced their last quarter conversation about how they had not seen the expansion in 2Q repeated in 3Q.
He then asked: “So what did you expect to turn around that didn’t, obviously…and how do you rectify that?”

The CFO responded but really didn’t answer the question, so the analyst tried again with the CEO, refining it further:

“Is it (i.e. the lack of expansion) a go to market issue or a product approach that you take to try to rectify this?”

And this was the CEO’s response:
"I think, you know, to be clear, I mean so 2021 phenomenal year, real breakout year for us, 63% revenue growth 54% customer growth. I think what’s key to understand is to Vuong’s point the precise timing, this is an evangelical sale. And so the precise timing of these expansions can fluctuate. And so great example of that is you know, called Venmo in PayPal. So Venmo has been a customer with us for a really long time. And then when they got acquired by PayPal, it took a few years for PayPal to adopt the religion of digital optimization of data driven product of, Hey, we’re going to track metrics in our product and understand and use those metrics in order to figure out how to drive revenue throughout our products.

And so, it’s not a rip-and-replace where it’s like, okay, here’s a clear thing. And you swap it out. It’s more an adoption of a new type of religion. And so to that point, I think the – I have a lot of confidence that, that’s the right way to run your product business. And there’s no question that that religion is happening, we’re seeing, I mean, if you had asked me a few years ago, Hey, would Toyota be a customer? I’d be like ah they’ll probably take a while. But we’re seeing that happen in both tech and non-tech companies. The question I think is just, what’s the precise timing of that adoption of this new way of building product."

THIS IS MY QUESTION:
Does this give you the impression that they either don’t know what is causing the problem or they don’t know how to rectify the problem or the problem will fix itself as companies get religion?
Isn’t this the place where we would like the CEO or CFO to say something like:
We see the same thing you are asking about and we have diagnosed the problem with these fluctuations as being x, y and z and these are the 3 steps that we plan to take to rectify it.

I am new at this so maybe my expectations are out of place. Would appreciate your take on this.

Many thanks
Barbara

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Does this give you the impression that they either don’t know what is causing the problem or they don’t know how to rectify the problem or the problem will fix itself as companies get religion?
Isn’t this the place where we would like the CEO or CFO to say something like:
We see the same thing you are asking about and we have diagnosed the problem with these fluctuations as being x, y and z and these are the 3 steps that we plan to take to rectify it.

I am new at this so maybe my expectations are out of place. Would appreciate your take on this.

Yeah, I think your expectations are out of place. You have to remember how extraordinary we expect our companies to be. We call it “hypergrowth” and it’s only the elite of the elite that attain it. And even then, many can’t sustain it for long (which is why we watch our companies like hawks).

When the CEO says “I mean so 2021 phenomenal year, real breakout year for us, 63% revenue growth 54% customer growth. … The question I think is just, what’s the precise timing of that adoption of this new way of building product.”, he’s very literally saying “Yes, we had hypergrowth last year, but it took a lot of stars to align. We have a great product, we are showing great success in the market, but we just don’t have the customer demand to support continuous 60% growth”. My interpretation is that he is saying “we are a great company, but not ‘Saul level great’”.

Yes, that statement going to cause the stock to decline. But that’s better than getting beat up every quarter for not meeting unrealistic demands. In the long run, they have to set expectations somewhat reasonably. Otherwise you make bad business decisions. (I’ve seen this first hand, where decisions are made based on revenue growth that never had a chance of happening, just to please VCs. Which only leads to losing good people and losing good opportunities.)

But, anyway, yes, the CRO probably knows some things that can be done to improve the numbers. And, yes, he will do those things. But they will also run into unforeseen challenges. We ask the impossible of our companies. The strange thing is not that some fail, the strange thing is the some succeed. I’ve worked for several startups on rapid growth paths. But none have ever reached anything close to what we expect from companies. And it’s not something you can tweak by adjusting knobs x, y, and z. Frankly, I think a lot of it comes down to being in the right market at the right time with the right people. You can fix the last of those variables, but there isn’t much you can do about the other two.

–CH

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Sounds like AMPL is in a comparable position to UPST: they are creating a whole new product and with it a whole new market, and it will take time for potential customers to learn about it and adopt it.

I believe many of us bought into stocks like AMPL in search of the ‘next best thing’, and with the desire to get in early. And I still think it’s reasonable to do so, but it’s prudent to do so with a small allocation until the promise turns into actual proof.

It seems to me that it’s unreasonable to expect a perfect, continuous growth curve from such early stage companies. There are two distinct choices:
a)stick to those companies that [already] epitomize the SaaS model, like DDOG
b) invest in companies like UPST and AMPL but accept that growth will be lumpy and the share price will show wild gyrations as a consequence.

Both approaches carry risk.

In the case of a), it’s that there aren’t a lot of DDOGs around, so we end up with a highly concentrated portfolio which will also get severely punished on the day that DDOG misses growth expectations by a few % - plus a lot of the perfect performance is already baked into the stock valuation.

In the case of b), the risk (apart from short-term swings) is that AMPL’s offering will never make it into the DDOG league - maybe the market opportunity just isn’t what we thought it could be, or maybe AMPL is just a little more mediocre as a company and will never execute perfectly.

Either way, I think it doesn’t make sense to buy Amplitude AND expect perfect performance at this early stage.

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Hey Barbara,

There’s no one-size-fits-all to any of this except hard numbers. Ratios/Metrics are what they are.

You say you wanted to see this response,

We see the same thing you are asking about and we have diagnosed the problem with these fluctuations as being x, y and z and these are the 3 steps that we plan to take to rectify it.

I agree with you 100%. I sold all my AMPL last night. Skates is very young. His meandering, hedging, qualifying language does not instill confidence. He is a brilliant kid, a great success and will be an excellent leader. But he is not right now. And that quote shows it. The stock has been decimated. And that is surely, in part, as a result of management failing to inspire investors, analysts.

Yesterday, The Trade Desk (TTD) was down almost 10% after releasing earnings. The CEO, Jeff Green spoke on the CC and the stock returned to even. Fastly, on the other hand, put out numbers. And then during the CC, the stock took yet another savage beating. The CEO fails to inspire confidence, has no track record as a CEO, is relatively young and his performance has led the stock from the 120s at its high to its anemic $20.47. Veteran leaders like NET’s Prince, CRWD’s Kurtz, SNOW’s Slootman consistently inspire, instill confidence and help get what’s been called a “narrative premium”. Not always, not every minute, but in general.

For me, AMPL is just not ready for prime time. And I doubt it will be anytime soon, if ever, for those of us with heavily concentrated portfolios.

Best,

BD

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I will say that the CFO for AMPL was also very uninspiring. Now the reality is, that he may be completely 100% qualified and very good at his job, but he was not good in his presentation or answers during the Q/A. I have had the pleasure of working with many Vietnamese born Americans in my time, and I had trouble understanding him at some points, which did not help the situation.

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Thank you all for taking the time to reply.

Your replies have been helpful for different reasons.

And, just to clarify, I was not asking about the company’s performance but about the leadership’s performance when asked a question - twice - and a question that was surely anticipated.

Since I am new at this I am not yet confident of when I am trying to read tea leaves and when I am onto something that bears listening to.

Again, many thanks
Barbara

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“We see the same thing you are asking about and we have diagnosed the problem with these fluctuations as being x, y and z and these are the 3 steps that we plan to take to rectify it.”

I don’t think we can expect that kind of precision in a public setting.

I don’t find the response unreasonable as it invites patience and it does so by trying to argue that in fact change is happening, sometimes slower than desired, sometimes faster. Nor do I think the numbers were terrible. But I find this more like a Rising Stars TMF idea at this point than a concentrated port idea.

I had a 3% starter position trying to follow a rule of “minimum two reports” before a more serious investment but even so the lesson is to just do 1% when the company is so young in all sorts of ways.

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In my opinion, the entire AMPL team did an absolutely terrible job communicating to us the reason for subpar growth in Q4. I listened to the call 3 times, I read it twice, and I still can’t figure it out. It seems as if they were surprised by the questions and did not completely understand what is being asked.(Its not like the analysts were particularly clear either - just asking why you grew 9% vs prior quarters with much higher growth, in a historically high growth quarter would have been enough). Maybe I’m being naïve but this felt very different to me then when Josh Bixby at Fastly tried to bs around their terrible results when they had to preannounce two summers ago.

Their IR needs to call the IR folks at Upstart to learn a thing or two about Wall Street expectations.

Overall I heard a lot of positive commentary about the future, their customer growth is strong, the industry awards point to technology that is being valued. They have stated very clearly that their 2022 guide is something they feel they can absolutely achieve. They clearly are being conservative. We just dont know enough at this point. Is something wrong? Is it not? I dunno.

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