Amplitude (AMPL -3.95%) went public in September 2021, right before the Nasdaq peaked and tech stocks started to crash.
The software-as-a-service (SaaS) stock focused on digital optimization is still down substantially since its initial public offering, but the company's second-quarter earnings report shows the stock may have put the worst of the sell-off behind it as the stock was up 7.7% after hours on Tuesday.
Revenue in the quarter rose 17% to $67.8 million, topping analyst estimates at $67 million and the company's own guidance. Paying customers grew 28% to 2,344, outpacing revenue, due in part to a change in its pricing model. Dollar-based net retention rate in the quarter was 101%, showing expansions have slowed significantly, coming in nearly flat.
The company also made progress on the bottom line as it reported adjusted earnings per share of $0.02, matching analyst estimates, up from an adjusted loss per share of $0.08 in the quarter a year ago. Free cash flow in the quarter jumped 137% to $19.3 million, and the company said it expected to be free-cash-flow-positive going forward, a key step in its path to profitability.
Guidance for the third quarter called for $69.7 million to $70.3 million, ahead of estimates at $67 million and representing growth of 14.5%, and it sees adjusted earnings per share of $0.02 to $0.03, up from an adjusted loss per share of $0.03 and in line with estimates at $0.02.
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Making a move into AI
Amplitude is focused on providing digital analytics tools so companies and organizations can better understand how their digital products perform and how they can be improved. For example, Amplitude's analytics helped Peloton Interactive recognize the value of social interactions in its classes.
With excitement building around artificial intelligence (AI), Amplitude, whose recommendation engines have long relied on the company's machine learning algorithms, is now launching a new program called Amplitude AI, which features an AI-driven chatbot it calls Ask Amplitude that can make data easily accessible. The company also has new formula suggestions and data taxonomy tools for customers to use.
Commenting on the opportunity and AI and Amplitude's approach to it, CEO Spenser Skates said on the earnings call: "The first thing to understand is we have one of the largest data sets on behavioral data in the world, and if you think about what AI is really good at, it's really good at extracting and summarizing insights from large volumes of data. And so I think it has the opportunity to supercharge what analytics does."
In other words, AI has the potential to significantly expand the addressable market for its analytics tools by expanding and accelerating its utility.
Also adding to the functionality of its data, the company partnered with Snowflake, the data warehousing giant, to launch a Snowflake-native app that allows joint customers to access Amplitude's behavioral insights directly from Snowflake.
What it means for investors
Amplitude is still facing a challenging macro environment, which is reflected in the net retention rate and in management's guidance for the second half of the year. Much of its customer base comes from the tech sector, which is still reeling from a wave of layoffs and the correction in valuations.
However, the company is still delivering solid growth, and its launch of Amplitude AI, the first such product from an analytics company, should step up its long-term growth potential.
Based on the company's guidance for the year, the stock trades at a price-to-sales ratio of 4.5, which seems like a fair price to pay for a stock that's leading the emerging product analytics industry, just launched a new AI suite, and should benefit from the broader recovery in the tech sector.
At the current price, the stock offers a lot of upside potential over the coming years.
