Amplitude, Inc. (AMPL) Earnings Call Transcript & Summary

Good afternoon. Thank you, everyone, for joining us at the Morgan Stanley TMT Conference. My name is Elizabeth Porter. I'm an analyst on the U.S. Software Equity Research team. And I am very pleased to have with us today Amplitude CEO, Spenser Skates. We are taking audience Q&A, there will be some mics going around at the end. And for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures.

So with that, Spenser, thank you so much for joining us for the second year in a row after your guys' direct listing in the fall of 2021. Just to kind of kick it off, could you give us an overview of the company? And what was the problem that you were trying to solve for customers when you thought of Amplitude?

Yes. So before Amplitude started, we actually -- me and my co-founder, Curtis, worked on this company named Sonalight, which was a voice recognition application. Think of it as a version of Siri for Android phones. And one of the things that was really clear to us at the time was the way we should be building product was by looking at the customer journey, seeing what customers use, what they liked, what they didn't like, one of our top questions at the time, we wanted to figure out how much the accuracy of the voice recognition algorithm mattered for long-term customer engagement and retention. And it was just -- I know it was obvious to us that this is the way you should be building a product. When we looked out there on the market at the time, there was nothing out there that could give you answers to those questions. I remember, Facebook had come out with a famous study at the time that they found that the #1 predictor of long-term engagement was how many friends you added. So if you added 7 or more friends in the first 10 days, you had an 85% chance of being a long-term successful user. And if you didn't, it was less than half that. And we -- I remember looking at all the different tools in the market, Google Analytics, Adobe, Mixpanel like tons and tons of tools. And no one was able to answer that question. So like a lot of engineers with Hubris, ended up saying, "Oh, let's -- how hard can it be? Let's go ahead and build this ourselves." We ended up shutting down Sonalight about a year into it, but when we showed other companies what we're able to see, they were like, "Oh, we need this exact same sort of thing ourselves." And so that was the start of Amplitude in 2012. We launched the company in 2014, took it public in 2021, and here we are.

Great. So with the whole digital product like optimization and thing, what a digital product is, why don't we need to do to make it better? That's clearly most applicable to tech-native companies. And many of these companies -- definitely the one that helps accelerate Amplitude's growth. Those are also some of the companies that are having some of the hardest times right now kind of tightening their belt on costs. So can you just help us understand a little bit more about your end market exposure, kind of the revenue that you guys have to these smaller tech-native companies that might be feeling the pressure versus the non-tech side, and how demand is trending in each of those buckets?

Yes. So for sure, we have some headwinds in the business. No question about that. I think what you see with Amplitude is we had massive growth in 2021 as a result of how many digital natives we had on Amplitude and we're seeing headwinds this year, both on the expansion and insurance side as we go into 2023. I kind of make 2 big points on it. The first is that, as you're talking with these customers that are experiencing short-term headwinds, whether have through layoffs or other budget pressures, their expectation is that they are going to grow with us long term. It's not like they expect to continue to reduce spend or switch off to something else. Their expectation is that their usage of Amplitude will grow with us long term. The other thing I'd say is we're starting to see a lot more traction from traditional companies for the first time. So in Q4, we had large expansions with Fox Broadcasting. We had NTT DOCOMO. We had another one with one of the largest media conglomerates. And that's one of the things that we're seeing. Every single company out there is becoming a tech company in terms of that's where its customers are. That's where it's driving revenue. That's where the growth area of its business is. And so when they want something that gives them visibility and control of that, that's when they're looking to amplitude. And so I think we're starting to see that transition happening more and more as we go through time. I think one of the other big data points that we saw for the first time is that companies are willing to adopt us big and from the start, we had several large 7-figure lands for the first time in 2022, and that's not something we had done before in Amplitude's history. And so people are starting to get the importance and value of this category. What they're looking to us to really teach them is, how do you actually go along that journey? What is that I need to do in terms of setting up and adopting the software and training my workforce to use it?

Great. And before we dig more into the business, I wanted to touch on some of the management changes that have happened. You guys have made a series of changes from CFO, President, Chief Commercial Officer, just to name a few. So how would you describe the new leadership team? What are some of the biggest changes that you guys are looking to implement?

Yes. So I've been really focused over the last year on getting the right executive team to set up Amplitude from the growth from where we are today to $1 billion in revenue and beyond. I think Amplitude, in 2021, we had one of the most phenomenal growth rates out there. And in a lot of ways, the business outscaled our ability to build a great organization around it. And so that's what I've been really focused on over the last year. I'm really excited to -- we brought in Thomas in July of last year as President to run all of go-to-market end-to-end. So marketing, sales, customer success, revenue ops. He's done a great job making changes within that teams and up leveling for the capabilities that we need to have at this level of maturity. We just welcomed Chris 2 weeks ago. Chris, do you want to maybe wave to folks, say, hi. So we're very, very excited to bring Chris on board. As I think about how do we set up the business to systematically grow to attack traditional companies to broaden outside of digital natives to up level the how we tie the value and the use cases. I think there's a huge amount of opportunity for us to do that. And so I'm really excited about the team I've gotten in place.

Great. And then going back to mentioned Thomas kind of rethinking about some of the go-to-market initiatives. We know that there are some of the headwinds in the smaller kind of digital native businesses. Is there anything that you guys could do or doing from a go-to-market perspective to focus more on some of those traditional more broad-based enterprises where you mentioned seeing some new wins in those are areas that just might not be as under pressure in the current macro?

Yes. I mean, I think we've already seen successfully take down a few specific verticals. One of the patterns that we see is that you take down a lighthouse account within a particular vertical, and that allows you to win others. So I'll give 2 quick examples. For those of you who've met earlier today, you may have heard me say these already. The first is within the media vertical, I think we've had a lot of success there. So NBC was an early customer of Amplitude 4 years ago. And one of the big questions they were looking to for Amplitude was how do I get more subscribers to Peacock, our streaming service. One of the things they found out through Amplitude was that the key factor was whether you watched multiple TV shows, so multiple different TV shows within the same 24-hour window. If you did that then you're really likely convert to a subscriber and if you didn't you're much less likely. And so that was a huge signal for them about how they design the user experience, the app, the recommendations for what you saw when you first came on. We took that same playbook and then we brought that to tons of other companies, we brought them to Fox Broadcasting, we brought that to HBO, we brought that to Discovery. And so we've seen -- media has been one of the verticals that we've seen some really good success in the traditional companies. One of the other ones I'll point to is quick service restaurants. And so Chick-fil-A was an early customer of ours. They've been one of the more successful ones in driving digital transformation in their business. One of the use cases for Amplitude that they had was, how do I recommend the right upsell to a customer during their checkout process so they increased their total purchase size. So how do I recommend fries or a milkshake based on what you've previously ordered. And so we're now an integral part of how they do that. We since then taken that playbook to a number of other companies in the quick service space. So you look at Burger King, you look at Popeyes, you look at Zacks, these are all now Amplitude customers adopting that same sort of playbook. So I think there's tremendous opportunity for us to repeat that within lots of different traditional companies, whether you look at retail and e-commerce, whether you look at financial services, whether you look at health care and it's really, really early days for us there. I think one of the transitions that -- I think that the executive team that I put in place we'll be bringing to Amplitude that I'm very excited about is how do you talk about those use cases that I just went through in a customer point of view or customer language. Like I'm an engineer, and so I tend to think more about like features and functions like thinking about funnels or retention or cohorts, but that's not the sort of language and the value that these customers get excited about when they look at Amplitude. Rather, they excited about how do I increase my video subscribers? How do I increase my total cart size during checkout. And so adopting some of the storytelling and use cases and all of that to better match these traditional companies.

Got it. And then just going back to you mentioned Chick-fil-A and kind of this recommend product, which is a newer product because when you guys first came public. It was really a lot of the revenue was from Amplitude Analytics and other solutions like Experiment, which is more of the A/B testing, [indiscernible] which is now part of your CDP offering. Those are still pretty early. So can you give us an update on how many customers are multiproduct customers today? And how has the trend towards vendor consolidation started to benefit and accelerate the mix of customers taking more than just one product from Amplitude?

Yes. So I want to be really clear, it's early. I think the last public thing we shared was that between new products, particularly audiences and Experiment, we had $10 million in total bookings at the end of Q3 of last year. So again, versus a revenue base in the $200 million still very, very small portion of the customers. So analytics has been the primary driver. Now that all said, a lot of very exciting things happening with Experiment. I think we landed -- we did our largest deal ever in Experiment in Q4 of last year. And so that was a really big proof point and breakout moment for that product. We're seeing adoption of both Experiment and CDP. Those are typically between 20% and 50% upsells in the base analytics are very exciting. But it's still early in that the penetration across the customer base is low. I think in this environment, there is a huge opportunity to drive consolidation. People are not interested in any new spends by and large. But if you can say, "Hey, I can reduce your existing CDP spend off of segment and particle, or can reduce your existing experimentation spend Optimizely and LaunchDarkly ," that's actually a very, very compelling. And so we're having -- we've seen that happen already a bunch in Q3 and Q4. We're starting to have a lot more of those conversations as we go through this year. And I think this is the first -- one of the questions I often get from investors is like, "Hey, it's confusing. Everyone says they do something with product and data and user journey and UX and all of that." This is one of the first really strong pieces of evidence that we're seeing towards consolidation in the space. It used to be if you're a new kind of growth or data leader in one of these companies, you'd come in and you'd purchase like 5 or 6 different tools right off the bat in order to get them to work. I think we're seeing for the first time that for a bunch of those tools, instead of deciding to go buy a bunch of the best-in-breed stack from multiple vendors, you're actually buying from the same vendor because that's good enough. And the exciting thing is we're the ones that are driving that. We're seeing that consolidate onto Amplitude. And we're not seeing people consolidate away. And so even though it's very early in this category, I think we're seeing the signs that we're able to -- we're going to be able to drive that over the long term.

And specifically with CDPs you mentioned being able to take away from a segment or a particle -- and particle, how often is Amplitude replacing another CDP versus doing more of a greenfield implementation for clients?

So CDP is a little more nuanced in that. Our belief is that the CDP space commoditizes. And so whether people use something internally or where they use 1 of the 30 vendors out there to use us, we're not -- we're kind of agnostic to. And so I think for the ones that are consolidation, for sure, when there's big line items for other tools like some of the ones that you've named, that's a huge motivator for them to come on to an amplitude. Experiment is, I think, one of the actually more interesting ones because most companies we talk to have an existing budget for A/B testing or experimentation. It's rare that you don't. You have some whether that's an internal tool and the team around it, whether that's your third-party vendor, you're going to have something that funds A/B testing and experimentation. And so that is actually a very compelling sell during this time because yes, you can replace that team, you can place that internal tool, you can replace that with Amplitude. So, one, you get budget consolidation and two, you get all the benefits of being integrated with your analytics where you get to target your experiments much better, you can measure experiments in a much more accurate way because you have the full data set with analytics. And so it's kind of a win-win in that you both get reduced. We get to get more dollars from the customer, they get to reduce their overall spend, and then you get all the benefits of having a consolidated tool.

Got it. And I wanted to touch on technology partnerships and how that really fits into your growth algorithm. You mentioned there was a Snowflake partnership that was announced back in 3Q '21. And one of the highlights you called out was just that it accelerates the process of getting data into Amplitude. So I wanted to ask what are the other opportunities for technology partnerships that are similar to the Snowflake partnership? And how have you seen that impact the financials in terms of just expanding the amount of data that you can get into Amplitude and the spend that customers have with the deal?

Yes. The biggest challenge by far, is every customer you talk to wants to do this philosophically, like they get it. This is where stuff is going. The question is how and how quickly can I get there? The thing that's really exciting about Snowflake and all the cloud data warehouses where you look at BigQuery or Databricks or some of the others, is that, a lot of customers already have the customer journey data within these tools. And so instead of having a re-instrument and do a line of code wherever you want to track the customer journey, you actually have it already. And so how can you take that data and pipe it to Amplitude. Now we already do a bunch of that today where there are a few hundred customers that use integration between us and Snowflake to send data from Amplitude to Snowflake or Snowflake to Amplitude to get started. The part I'm really excited about is that we actually -- just on our last earnings call, we announced that we're going to be building warehouse net of Amplitude for the first time. We actually sit on top of the Snowflake data, and so that makes the implementation or adoption barrier much, much, much lower for Amplitude and you get started much quicker without having to deploy any engineering resources at all. So that, for sure, is the biggest one. I think -- beyond Snowflake, I think as we start to invest more in that and grow off of that, we'll be looking at some of the other cloud data warehouses as well. I think in terms of other big technology integrations, it's not -- from an adoption standpoint, the brace has been pretty good for us, like we're often adopted alongside each other and the customers that we work with.

Got it. I want to move over to competition a little bit. You mentioned when you were first looking to have found Amplitude, you had been looking at tools like Adobe and Google Analytics to kind of solve some of the problems, but they just weren't quite cutting it for you. Now those solutions collect similar data. So I just wanted to double click into how is what Amplitude doing really different than the Google Analytics, the Adobe Omniture. And as Amplitude starts to get into more marketing use cases, what's the risk that you run into those platforms a little bit more?

Yes. So we're already actually running into Google Analytics a lot, and it's a great thing for us. The more we can make it about us versus -- Google Analytics versus Amplitude, that's a great place for us to be in. You look at Google Analytics, they have an installed bases like 5 million different installs for their SDK. And so that's a huge opportunity for us. We're at like the 2,000 mark in terms of number of customers on Amplitude. I think -- so I think -- okay, so why choose Amplitude over Google Analytics or Adobe and has a compare? Google Analytics and Adobe were built for the internet when it was viewed as a marketing channel. And so all the -- the data structure, the data model and the questions is designed to answered is are all targeted towards that. And so they're looking at questions like what's my return on ad spend, where are my visitors coming from? What ad campaigns are impacting? What pages are people visiting the most? Whereas the questions we're asking are fundamentally different, like how do you get more subscribers to the Peacock app if you're NBC? You can't get that out of Adobe. You can't get that out of Google Analytics. How do you increase cart conversion and checkout conversion if you're Chick-fil-A? You can't get that out of Google Analytics or Adobe. So we view digital, our data model is structured for digital as a product and value delivery itself as opposed to just a marketing channel. So that's fundamentally different. Now in terms of how we're going to intersect with them. So we're seeing a lot of switch overs already from Google Analytics to Amplitude, and that's been something that's really exciting. A great example is when we landed in Q4 with Fandom. So those of you who don't know Fandom, it's like one of the largest wickies out there. They allow you to have wickies for like different topics around TV shows or movies or what have you. And you might think of them, they're an advertising business model, so very marketing-centric company. A lot of their use cases are like, okay, how can I show more ads to my customer base? What pages are performing well? But they actually decided to switch off of Google Analytics to Amplitude because in addition to their marketing questions, they also had a lot of product questions. So they wanted to know, how do I get my creators to create more content because the more content and the more pages I have the more I can monetize my user base. They also wanted to know how do I recommend the right piece of content based on what you've clicked on and seen previously. Again, a product question. And so they actually wanted to have a tool that span the user journey, both across marketing and product, and that's why they ended up coming on to us from Google Analytics. That was a huge win. And so I think evidence that Amplitude can take on those marketing use cases as well as products.

Yes. You guys have seen great success in 2022 just in terms of being able to being to go up against Google Analytics and they have an event where they're sunsetting their own product in 2024 that you guys can take advantage of. So just given kind of the success that you've seen in 2022, knowing that there is kind of this time line out there in 2024 for when that product sunsets. How should investors size kind of this replacement opportunity? And what kind of momentum it can bring for Amplitude in 2023?

Yes. So we haven't guided or broken out specific numbers on Google Analytics. But I think the way I'd characterize it is we've done a lot of one-off replacements of them over the last year and what we're looking at doing this year is systematically taking them down. And so one, we just did a marketing campaign in January against them. We launched a new version of our pricing model, MTU pricing, that's specifically targeted to make it easier for customers to switch over, we're going to do more. And so the idea is to systematize that pipeline. Frankly, one of the other things -- one of the things we joke about is like Google is like the worst B2B company on earth. And so it's very, very easy to go compete against them if you're trying to take away customers.

Great. I'm going to ask another question or 2, and then we'll open it up to the audience for Q&A. So Amplitude does have a subscription-based pricing model, but it is based on the volume of events that are being digested through Amplitude. And I think one of the things that's been great, but also a headwind near term is you've been really proactive in helping customers kind of figure out how can we be most efficient in spend and just optimize the data that's running through Amplitude. So can you help us just better understand what are some of the near-term headwinds that presents on the net retention rates, but also kind of the longer-term benefit to the customer relationship.

Yes. So I think a few things. So one, the primary lever is events today. And one of the things we're trying to evolve and why reasonably excited that Thomas and Chris and others here are here at Amplitude is that presents us an opportunity to speak more to value in the pricing model, right? So we're not just buying a set of events. We're buying increased shopping cart conversion, and we're buying a lift on our total amount of addressable customers that we can advertise to, and so I think that's going to be an evolution in terms of our model. We've already started to introduce the levers for that. So Experiment was a big part of that. When you're introducing that use case. Again, that's an uplift on kind of the base and that gives you kind of another lever to play with on the pricing front. CDP is another one. We're going to be coming out with more. I think I said when we went public that we'll be coming out to 1 new -- to 2 new products a year like that remains -- that's something that we remain committed to and will allow us more levers, 2 areas I'd point to in particular. One is vertical specific analytics. So analytics for media companies, analytics for retail and e-commerce use cases, analytics for B2B companies. And so that will help us drive more kind of value-based conversations. And then the last thing that I'd point to on headwinds in terms of the pricing, is that, again, what I said earlier, is like those customers do expect to grow with us from a value-based standpoint. It's just that in the short term, they're looking to reduce events or reduce data or reduce the amount they're spending on amplitude because the growth that they saw in 2021 slowed down this year. So...

Do we have any audience questions?

[indiscernible] 5 million Google Analytics all of a sudden go through [indiscernible] revenue.

5 million -- question is, if 5 million Google Analytics installs go to us. I'd say massive. That is the biggest thing, which is how do you get more folks aware of amplitude. Now I want to be clear in that, like out of those 5 million, they're only monetizing some small percentage of that, a few percent of that 5 million. But in terms of generating awareness of being the default. I think if you do that, you solve the issue from here to 1 billion and beyond, no question in my mind. And so I want to be clear that like our expectation is not that all of a sudden, we're going to go replace those 5 million installs. But the question is how much can we get from that channel over the next few years as we continue to grow Amplitude.

So I guess long term, do you think there's any difference in retention between your legacy tech businesses or that core market versus your non-tech minuses? Because the way I kind of think about it is a tech company has a faster cadence of new products. So therefore, more experimentation. But the menu at Chick-fil-A rarely changes once you have those questions answered, like what's the reasons you stay on the product?

Yes. That's a great question. I think -- so the first thing to be clear about is that once you're in the product and you have those use cases, you're not coming out and part of it -- part of the thing for us is how do you find additional use cases for that data and additional products to sell that to through over time. I think one of the best analogies I always look to is what Adobe has done as part of Adobe Marketing Cloud. I mean they've done a phenomenal job. They have a suite of 60 products. The doing billions of revenue through that. The analytics is [indiscernible] is a central piece, but they have tons of other pieces whether you want to do experimentation, whether you want to do ads, messaging, user targeting, CMS, like there's tons and tons of needs. And so I think that's a good question. I haven't actually thought about differences in net retention. I think you actually get a similar net retention, both in digital natives and in traditional companies. And yes, the digital natives are going to have a faster pace of new products and delivery, but all the same set of needs to be successful in the digital channel exist for traditional companies. Now I think like you're always shipping new versions of your app. And so you're always wanting to know how do those new versions improve or break things or am I having issues on different geos. There's no end to wanting visibility and control of the revenue coming through our digital channel. And so I think over the long term, the net retention rates of both digital natives and the traditional companies end up looking quite similar.

I guess on the topic of Google Analytics, it would be helpful if you could talk about how Google Analytics for -- differs from just the legacy Google Analytics products. I've heard that they're trying to do things more like event tracking and -- but I don't -- I just -- it's hard to like find information, frankly, and even for their customers, what that looks like. So I guess to the extent you have information on what Google is trying to do with GA4, and how that might be more maybe less competitive with amplitude, that would be helpful.

Yes. So GA4 is Google's re-architecting of the Google Analytics platform to get in line with this latest generation of technology. And so to your point, Universal Analytics, which is their legacy solution is a page view-based model. So it thinks about what pages are getting the most clicks, where referrals are coming from, whereas GA4 is all about how to use events to track the user journey. So it's the right architectural model. The problem is GA4 is a pretty immature product. And so whereas Universal Analytics, as you imagine, it's like a 20-year product, so it's quite fully featured. And so a lot of the capabilities that are considered basic to have in marketing analytics, GA4 does not have. And so that's what's that among lots of other things, is triggering companies to say, "Hey, do we even want to go to GA4?"Google actually had to move out the sunset date of Universal Analytics because of the backlash from its customer base that GA4 was not as mature of a product yet. And so think of it as like right model, but very, very new product. And so from my standpoint, that's a huge opportunity for us over the next few years.

[indiscernible]

Compared to the Google Analytics, the purpose of Google Analytics is to drive people to use their moneymaker, their ads product, both in search and web, and so they don't care about Google Analytics. They're not a B2B company at score. Yes, like Google Cloud, they're trying to drive that. But Google Analytics as a stand-alone offering. I mean, they care about it, I'd say, less than even their workplace tools. And there's a bunch that -- like if you look at GA -- if you look at GA4 migration, you just Google that and you look at Google's official documentation, how to do it. It's like a super cumbersome and really intensive, very manual process. And so I know I joke that Google is a great company to compete with if you're going up them from a B2B standpoint. And so yes, in the grand scheme of Google as a company, they don't care about the revenue from analytics at all.

That actually brings us on our time. Spenser, thank you so much for joining us today and sharing your insights.

Elizabeth, great to be here. Great. Thank you.