Amplitude: from Digital Transformation to Digital Optimization
You need to know about Amplitude. The data and analytics company that drives product innovations.
High growth, innovative, and virtually undiscovered.
Amplitude is providing visualization into the product journey like no other company currently does. Make no mistake, there are sales, marketing and product analytics solutions but not to this extent. They are pioneering a new SaaS category through the product optimization road map. Needless to say, I’m bullish on this stock and I’ve structured this article for you, the reader, to share my research with everyone.
Contents:
Digital Transformation to Digital Optimization, the secular trends
Amplitude product offering
Amplitude’s technological moat (Behavioral Graph)
Growth and Financials
Conclusion
Digital Transformation to Digital Optimization
Amplitude finds themselves at the corner stone from one secular trend to the next. Business leaders, over the past 15 years have witnessed disruption at an accelerated rate. This has forced leadership to quickly adapt and change their business models. With unprecedented access to data and analytics derived from it, executives are asking them selves questions like:
How do I create operational efficiencies?
How do we measure the ROI of technology and the investment into it?
How can I disrupt the market place rather than be disrupted?
What changes do we need to make to our business model that can enable further revenue growth
This is where Digital Transformation has come in. CIO.com defines digital transformation as, “a rethinking of how an organization uses technology, people, and processes in pursuit of new business models and new revenue streams, driven by changes in customer expectations around products and services.” This means legacy companies have had to implement systems to continue to stay ahead of much smaller, more nimble, innovative, businesses. Projects could include: e-commerce websites, an ERP system, mobile applications, a CRM, or various other software systems to enhance and innovate their business model.
After a business is “digitally transformed” the natural evolution was Digital Optimization. Essentially, this is the answer to the question of, “Ok, I have all this great technology that has improved my business model. But, how do I leverage it?”
Gartner defines Digital Optimization as, “the process of using digital technology to improve existing operating processes and business models.” Many legacy systems were not developed to actually DRIVE innovations. Yes, they were developed to drive improvements, enhance efficiencies, save money, monitor and protect. But, let me emphasize the drive portion to this. How I’m defining it in this context as jumping behind the wheel of a car, pushing the gas peddle and trying to get to a destination rather than just enhancing the experience.
Driving Product Innovation with Amplitude
Amplitude is in the general category of an “analytics company”, but their platform goes deeper and specializes specifically in the product category. What this means is that they’re not just a tool for a marketing company to find a demographic but they’re used to actually see how their customers interact with a digital product. It’s a complete end to end solution that provides actionable insights to either fuel innovations within the product or manifest an actionable adjustment within an existing product. They power this through three solutions within their business model.
1.) Amplitude Analytics: An analytics platform that enables decision makers to make important decisions and understand how a customer will interact with a product, identify why an end user may churn, or measuring latest marketing efforts. Key capabilities will include:
Intuitive interface for exploration of analytics derived from collected data
Discover specific users based on behavior
Story telling capabilities to see where a client or group of clients may have been
Data collection from B2B customers
Real time analytics
Portfolio data, specifically for businesses that have more than one product/service
This was their primary product that they originally offered prior to making any new innovations to their platform. This analytics platform was rated #1 by G2, read about the case study here.
2.) Amplitude Recommend: A personalization solution that helps teams increase engagement with digital products by tailoring customer experience. It has a behavioral and predictive method to provide suggestions to enhance digital products. A few key capabilities it has are:
No-code behavioral targeting
Predictive segmentation
Self-serve recommendation engine
3.) Amplitude Experiment: This allows businesses to send a test product, like a loyalty program, and quickly collect data. In turn, they can quickly make adjustments, manage and modify the test launch with measurable results. Key capabilities include:
Data-configured experiences: A guide for businesses to build the experimentation program using identity and cohorting capabilities .
Robust automated statistical tests that quickly allows product leaders to identify what’s not working and what’s winning
Amplitude Behavioral Graph:
The Behavioral Graph is the core of Amplitude. It’s a proprietary database for deep, real-time behavior with millions of customer data points. The behavioral graph drives personalization directly correlated with customer outcomes, based on collected data. This is what powered Amplitude from being just an analytics company to a more predictive and prescriptive analytics company. The complexities and advancements of the behavioral graph is enormous. The latest two innovations on their platform (Amplitude Experiment & Amplitude Recommend) came as a result from the behavioral graph.
It’s best to think about this as their competitive advantage. Other companies have a difficult time recreating this at the same level of sophistication. Further innovations can continue to be built on top of the Behavioral Graph. It acts sort of like a house infrastructure. From here, you can create more rooms for more people to live in. The behavior graph is the skeleton of the house and additional solutions are the rooms in the floor plan.
Except this time the house is massive and the rooms are limitless… Anyway, I digress, on to the financials!
Financials and Future Growth
When analyzing companies, it’s always important to understand the business that they’re trying to say that they’re in. In this case, it’s “Digital Optimization” which means that they’re in the business of predictive analytics for the product led organization. By leveraging their platform, businesses are able to gain a clear view into what their customers are doing and how to drive additional sales.
Their primary growth driver is to expand their platforms capabilities through further product innovations or to acquire businesses that build into their core offering for product leaders. For example, in 2020 they acquired ClearBrain to expand their predictive analytical capabilities and in 2021 they acquired Iteratively to expand their data management capabilities.
When listening to their investor day presentation, what really stuck out to me is that when they visualize growth for the future they for-see a solution that all C-Suite executives can use. Remember, Digital Optimization is their game and not necessarily product innovation. Product innovation is simply what they do today. This means they can continue to create new solutions for multiple business segments.
In terms of their financial position, it’s pretty incredible. It’s important to know that they’re a DPO and that all stock offered was not to provide additional capital for their current business operations. They DPO’d for their existing investors. Their balance sheet looks A+ even before DPO
Balance Sheet:
They’ve been generating cashflow through raising additional capital with investors, but it’s been gradual. The cash that they have on the balance sheet looks great especially with no debt! This provides flexibility to continue to expand their business and acquire additional businesses to enhance their product offering.
Margin Profile:
Last 6 months:
Gross Margin: 70%
Operating Margin: -21%
Cashflow from Operations: -$5,523,000
Conclusion
I did begin a position, but this is not a recommendation. IPO’s are risky and they often take time to find market equilibrium. I see a lot of competitive risks even though they are different from a product offering stand point. However, I started a position because I see a very exciting data company that’s growing very fast.
You have Snowflake that specializes on data storage, but now you have Amplitude that’s successfully creating a solution for analytics and predictive analytics. This is a very new and exciting technology that has years and years of growth ahead of it. Also, interesting side note, Amplitude is partnered with Snowflake so customers can use Amplitude with Snowflake’s cloud solution.
This could be a multi-bagger IPO but the story may take years to unfold. Either way, I’m happy owning stock and following along with this story. My long term thesis told short; I believe they’re in an excellent position to become the product of choice for product leaders and I believe product led organizations that leverage data driven insights to drive sales will succeed long term. Data and analytics provide businesses with capabilities they have never had before.
I hope you all enjoyed this and found it informative. At the time of writing this, there is little to no research on this company from the Motley Fool, Seeking Alpha or any other sources. My subscription often focuses on companies just like this to provide you, the member, new stock ideas in an otherwise mundane stock market with few new companies being discussed. Subscription service primarily offers:
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Stay tuned, stay classy…
Dillon