3 Reasons to Sell AMPL and 1 Stock to Buy Instead

Over the past six months, Amplitude’s stock price fell to $11.30. Shareholders have lost 11.9% of their capital, which is disappointing considering the S&P 500 has climbed by 8.6%. This may have investors wondering how to approach the situation.

Is now the time to buy Amplitude, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Amplitude Not Exciting?

Even though the stock has become cheaper, we don't have much confidence in Amplitude. Here are three reasons there are better opportunities than AMPL and a stock we'd rather own.

1. Weak Billings Point to Soft Demand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Amplitude’s billings came in at $102.9 million in Q2, and over the last four quarters, its year-on-year growth averaged 9.9%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers.

2. Customer Churn Hurts Long-Term Outlook

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

Amplitude’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 100% in Q2. This means Amplitude would’ve grown its revenue by 0% even if it didn’t win any new customers over the last 12 months.

Amplitude has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

3. Operating Losses Sound the Alarms

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Amplitude’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging negative 33.7% over the last year. Unprofitable software companies that fail to improve their losses or grow sales rapidly deserve extra scrutiny. For the time being, it’s unclear if Amplitude’s business model is sustainable.

Final Judgment

Amplitude isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 4.2× forward price-to-sales (or $11.30 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.

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