Amplitude looks like its starting to turn the corner.
There's bad timing and then there's taking your cloud software company public in September of 2021 -- just two months before the tech sector imploded as the pandemic-driven boom came to a crushing end.
That exactly what happened to Amplitude (AMPL -3.25%), a cloud software company focused on digital product analytics, or helping businesses understand how customers use and engage with their products.
Amplitude debuted on the Nasdaq Stock Market at $50 a share and quickly rocketed higher, reaching a closing record of $84.80 in November.
However, like its peers, those gains quickly evaporated and its growth ground to a halt as its tech customers focused on layoffs and retrenching and consumers shifted away from tech and moved back to pre-pandemic spending habits.
Today, Amplitude stock trades in the single digits, but after a long slog, the stock could finally be ready to turn the corner. Let's take a look at three reasons why.
Image source: Getty Images.
1. Headwinds are finally lifting
Like the rest of the cloud software industry, Amplitude experienced a lot of churn in its customer base as the pandemic tailwinds faded.
Companies overestimated their need for software products in the work-from-home environment and cut licenses through layoffs or simply scaled back bloated technology budgets in preparation for a recession that never came. In an interview with The Motley Fool, CEO Spenser Skates noted that the company lost two large contracts, but it's now put that behind it, setting it up better to grow the business.
Skates said the trough on contract resets with its enterprise customers occurred in the first half of this year, and the company is now expecting to see an acceleration in growth over the next few quarters and into next year.
That isn't immediately reflected in its guidance as the company sees near-flat sequential growth in the third quarter, but it did raise its revenue guidance for the full year, now forecasting revenue of $294.5 million to $296.5 million, which reflects a growth rate of 7%, up from a prior range of $292.5 million to $295.5 million.
Look for Amplitude to beat that guidance as a sign that momentum is building again.
2. There's a new AI hook
Artificial intelligence (AI) is moving slower in the software arena than some investors would like it to, but Amplitude has found another way to capitalize on the opportunity in AI.
It's receiving interest from generative AI companies, including Midjourney, an image generation AI; and Character.ai, a text-based generative AI chatbot.
It makes sense that those companies would want to work with Amplitude as they're experiencing thousands or even millions of digital events every day that they should be analyzing to make sure they're serving their customers as well as possible.
Character.ai signed on with Amplitude within the past year and has been growing quickly. Skates said on the earnings call that Amplitude was seeing a huge amount of Character.ai and said Midjourney was similarly huge. Character.ai has embraced Amplitude to hone its onboarding flow and to help with the release of its new feature.
Amplitude is also developing its own AI assistant and search tool to help customers, but its utility for fast-growing generative AI platforms could emerge as a growth driver for the company.
3. Amplitude is best in class
Amplitude also won a valuable accolade last week. It was named the only leader in the Forrester Wave report on feature management and experimentation solutions.
Amplitude beat out eight other companies for the title and received the highest score in 11 of the categories. It also benefits from its integration between experimentation and analytics as some of the companies it's competing with in experimentation are point solutions, meaning they don't offer the comprehensive set of analytics products that Amplitude does.
Skates stressed that customers want a full suite of solutions that can help them improve their product, including features that the company has recently added like session replay, allowing businesses to see precisely what actions users took with their product. The Amplitude CEO also said he expected the report to help Amplitude win more business from potential customers.
Is the stock a buy?
Amplitude's recovery won't happen overnight, but the stock has fallen far enough that an acceleration in growth could kickstart a surge in the stock.
I'd like to see clearer evidence in the numbers that growth is starting to return, but this stock is worth watching over the coming quarters as the potential for it to double or more is certainly there.
Jeremy Bowman has positions in Amplitude. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
