Amplitude...sigh

I went into the earnings report with a position over 10%. Looking back, that was a mistake. I let my allocation get ahead of my conviction, because I didn’t have anywhere else I wanted to put the money.

Here’s my take on the quarter: the sequential growth was 8.6% which annualizes to like 40%. The market immediately priced it accordingly…but here’s the thing: I don’t think they’re a 40% grower. I think it will be lumpy, but many future quarters will be better.

BUT - I’m not adding, because my conviction has been reduced.

I don’t know if I’ll trim it…I am loathe to sell at this level, because it is basically priced for the worst case scenario going forward.

Thinking out loud…maybe I’ll accept this hand slapping from the market and run with AMPL as a now single digit position. At least for now. Maybe eventually I’ll reduce it or sell, but for now, I think I’ll just leave it alone. I have a decent sized cash position if I want to buy (or add to) something else.

Just my initial thoughts. Kudos to you who were more prudent and had a smaller position or none at all.

Bear

PS I lost quite a bit here, but worse things have happened. Even after the damage, my portfolio has still rebounded significantly in February. I’m constantly reminded how many mistakes we can make and still do very well, as long as we stay in the game!

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I agree with your analysis but I get to a slightly more Bear-ish (couldn’t resist) conclusion. Still, there are some good stuff in the release, as well as bad. So here goes.

Q4 prezzo: https://investors.amplitude.com/static-files/35d37ddd-2e86-4…

Q4 PR: https://investors.amplitude.com/static-files/adad0b02-1288-4…

Q4 webcast: https://amplitude.zoom.us/rec/play/iHUMHNnxTZeNmt6BAyLOOT79k…

The good

Two things stand out for me: their improved NRR and their strong customer additions.

NRR came in at 123%, up from 121% in the prior quarter and 119% a year ago. So existing customers have been adding to their usage of the product, a very good sign.

They also added a record number of new customers, at 180, vs 119 in the prior year and 137 in the prior quarter.

However their growth in large customers was smaller than the overall growth in customers, at 47% yoy (262 to 385) vs 54% (1039 to 1597), even though the number of very large ones (>$1m in ARR) grew quite nicely, by 97%.

Still, this unfortunately paints a picture of their increasing NRR being driven by a very small subset of their very large customers, in stead of a broad-based sea of adoption.

The bad

Revenue growth. Period. This one is a problem as it is arguably the most important metric to gauge where a company will ultimately end.

The last 4 quarters’ revenue growth was:

Yoy: 48% → 66% → 72% → 64%
QoQ: 10% → 19% → 16% → 9%

And QoQ growth for the last 4 Q4’s (to account for possible seasonality):
10% → 14% → 9%

…and guidance is for 3% qoq next q (they did 11% and 10% in the previous two years).

So however one wishes to slice this it comes out bad. Deceleration qoq, yoy and for the same Q’s qoq vs the prior 2 years. Oh and guidance is “meh”.

Add to this that their current RPO growth (i.e. a harbinger for things to come) did the following in the last 3 quarters yoy:

76% → 66% → 60%

And suddenly the guidance slowdown looks quite credible too, not only sandbagging…

On top of this, margins failed to impress, with FCF margin improving a bit to -25% from the prior Q’s -35%, but not vs the prior years’ -13%. And operating margin downright deteriorated to -10% from -5% in the prior Q.

In this environment where even stellar results got clobbered or not rewarded, it is no wonder that the stock took a beating. Which brings me to

The ugly

The after hours share price movement can only be described as ugly.

I still believe that a data-driven approach to product development is the only way to go, and that this will increasingly become the new normal.

However, there are other ways to do data-driven product development. For example with a a variety of tools: hotjar to see what customers are actually doing on your site, google analytics to analyse what gets done, a/b testing to see what works and what does not, sentry/grafana/datadog to see what breaks and why, customer feedback to hear what customers are actually telling you, NPS surveys etc etc.

And this last part is what changed my thesis. If their approach is so much better than the other data-driven methods out there, then that should be apparent from a veritable tsunami of new customers, adoption and revenue growth.

If it takes a long time - even for an existing customer (the Paypal example the CEO gave in the call) - to see the value and adopt the product more widely, then I believe there is a problem.

So I’ll look to exit this position (but not sure of the timing) in order to deploy the cash into companies who blew past our, and their, expectations. Of the ones who have already reported, that includes Upstart, Bill.com and Datadag for me. I will continue to keep an eye on them though.

-WSM
(currently still ±5% position in AMPL based on yesterday’s price)

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