Significantly Decreased by 88%, This Growth Stock Presents Possible Rebound Opportunity in 2025
Tech shares experienced a dramatic surge in 2021, spurred by the tail end of the pandemic. However, tech stocks that debuted during this period faced a challenging situation, caught between a bull and bear market.
One such example is Amplitude (-4.37%), a software-as-a-service company specializing in digital analytics and digital product optimization. It went public in September 2021, riding the wave of enthusiasm for the tech sector and the company's robust growth at the time of its market debut.
However, like many tech companies, its growth rate swiftly slowed as the economy reopened, and businesses shifted their focus towards other priorities. The stock plummeted in the latter half of 2021 and 2022, and has remained in the doldrums since then. Amplitude is currently down an alarming 88% from its peak shortly after its initial public offering. However, indications of a rebound are beginning to emerge. Let's delve into three potential reasons why the stock might skyrocket in 2025.
1. Customer defections are finally under control
Part of Amplitude's struggles over the past few years can be attributed to many of its customers, like other tech companies, over-committing to the platform. This led to a deceleration in revenue growth and weak performance since 2021. However, Amplitude is now past most of these customers' defections, paving the way for a growth resurgence in 2025.
CEO Spencer Skates acknowledged this during the earnings call, stating:
... ARR [annual recurring revenue] and revenue reacceleration are within our grasp. This quarter sets us on that path. While we've made progress, there's still a lot of work to do. We're past the majority of overbought to optimization contracts, but churn is still high.
Quarterly revenue was up 6% to $75.2 million, with annual recurring revenue reaching $298 million - a positive sign for accelerating growth. The company continues to attract large customers, with those generating $100,000 or more in annual recurring revenue increasing by 13% to 567.
Amplitude's revenue growth rate was artificially restrained due to post-pandemic customer churn. As this factor fades, its growth rate should return to double digits. This is suggested by the 21% increase in remaining performance obligations (RPO, a proxy for backlog) to $286.6 million, and a 49% jump in long-term RPO (contracts greater than 12 months) to $75.5 million during the quarter. The company attributed this to stronger relationships with its customers and increased investment in the enterprise segment.
2. It could poach customers from rivals
Amplitude's main competitors in the digital optimization domain include Alphabet's Google Analytics and Adobe Analytics. According to Spencer Skates, Amplitude's customers are growing increasingly disillusioned with Google Analytics, which Skates believes is creating an expansive array of prospects for Amplitude.
As customers grow dissatisfied with Google Analytics' persistent usability problems and unresolved privacy concerns, Amplitude stands to benefit. Amplitude can capitalize on the market for digital optimization, but it can also gain market share from larger competitors like Google and Adobe.
At the time of its public debut, Amplitude estimated its total addressable market to be $37 billion. With its current revenue run rate, it generates less than 1% of this potential revenue. If Amplitude successfully taps into this enormous opportunity, its revenue growth could witness a significant boost.
3. The Command AI acquisition could catalyze growth
In October, Amplitude announced its biggest acquisition to date, purchasing Command AI, a startup offering AI-powered user assistance. Command AI complements Amplitude's existing analytics platform and provides more of the features that its customers are looking for. Amplitude plans to launch a combined product next year, which will enable users to add features like nudges, tours, onboarding guides, and surveys to their digital products.
Command AI is just one component of Amplitude's strategy to broaden its product portfolio. The company also launched Amplitude Made Easy, a user-friendly option for customers, and Web Experimentation, a self-serve platform for A/B testing.
Overall, Amplitude's 6% third-quarter revenue growth might not attract much attention. However, momentum seems to be gathering, as indicated by its 21% RPO growth, decreasing customer churn, competitive challenges for Google, and product enhancements. If revenue growth starts to pick up, the stock could soar.
In light of Amplitude's challenging financial situation, it's crucial for the company to invest wisely to turn its fortunes around. Exploring opportunities to poach customers from rivals, such as Alphabet's Google Analytics and Adobe Analytics, could significantly boost Amplitude's revenue growth. Additionally, shrewd financial management and strategic acquisitions, like Command AI, can help expand the company's product portfolio and attract more customers, potentially leading to a substantial increase in revenue.
