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

Thanks for joining. I am absolutely thrilled here to have a fireside chat with Francois Ajenstat, Chief Product Officer; and Yao, Head of Investor Relations from Amplitude. So just to kind of kick off the conversation here, for those in the audience who are unfamiliar with Amplitude, maybe even unfamiliar with you, Francois, can you give a little brief background of Amplitude? What is it? What do you guys do? What is the opportunity that you're going after? And a little bit about yourself. You joined Amplitude, I think, in November of last year. And so what brought you to Amplitude? What have you learned since you've come to Amplitude? And maybe the one thing that -- or one of the key things that have surprised you the most over the past, call it, 6 months?

Well, Koji, thanks for having us here. Really delighted to share the story. Amplitude's mission is pretty straightforward. We help companies build better products, which is extremely critical in this environment where more and more companies are going through digital transformations, they're building more digital products and they have to think through the customer experience. And what Amplitude provides is it gives them a complete view of the entire customer journey. So they can really optimize every part of that customer journey, whether it's the acquisition of new customers, the activation, the retention and the monetization of those customers. Essentially, we help our customers build better experiences that delight their customers. And we are used by over 3,000 different companies all over the world, whether it's a Chick-fil-A, who not only does great chicken, but they also build kiosks. And they want to ensure that those kiosks work great and enable their customers to get the products that they want, or other companies like Fender. Fender builds great guitars, but they're also building digital mobile applications to help people learn how to play guitar. And so the mobile experience is critical and Amplitude helps to power that or large digital companies like Atlassian that is using Amplitude broadly to help them build better products, deliver new products that continuously serve and delight their users. And so as we think about that transformation that's going on in every company, in every sector, people are building more digital apps. And as they build more apps, essentially every company is becoming more or less a new software company. And so they have to operate like a software company. They need to use data to figure out what they're building and the results of that. They do experimentation to ensure that they're delivering the right experiences. They look at the entire customer journey to optimize and engage their users in the right way. And that's fundamental now, not just for digital natives, but every single company building modern digital applications. And that basically leads to why I joined Amplitude. So I've been at Amplitude now for just over 6 months. Prior to that, I was at a company called Tableau. And I was at Tableau for 13 years from the early start-up years. I was the first product manager hired, and I went through the entire journey from start-up to IPO to hyper growth, to rebuilding to eventually being acquired by Salesforce and one of the largest software acquisitions at the time and then spent 4.5 years at Salesforce through the integration, which was an incredible journey through seeing all the phases of the company. And before that, I was at Microsoft in both the Office team and the SQL Server team and before that, I was at Cognos. So I've been a data person, essentially my whole career. And I've seen the power that data can bring to companies, and I've been building for my entire career. And now the opportunity to combine data with building and enabling companies to transform is one I just couldn't resist. And I've seen this size of company as well. I've seen it go through the highs and lows, and I truly believe that there is an opportunity now to really enable these great experience to be built, with Amplitude at the center, that gives that full view of their customer experience.

When I think about Amplitude and the opportunity that you guys are going after, it almost seems like any sort of digital experience should have something like Amplitude behind it. Is that right? Or are there types of experiences out there where maybe Amplitude doesn't make a lot of sense?

I mean you're 100% right. Anybody that builds a digital experience, whether that's an e-commerce website, a B2B application, they're generating vast amounts of data about their user behaviors. But they need to understand where those users are frustrated, where there are issues in the journey, and they want to really know whether those applications that they're building are driving the outcomes that they want. And what Amplitude really does is it enables -- it gives every customer the power to know, the power to know what drives growth. The power to know what delights customers, the power to know what are the next opportunities to build. And so whether you're in marketing or products, whether your data team, Amplitude becomes essential to the entire customer experience. And this is so important today. Companies win or lose based on the quality of the digital experience, not a nice to have, it's a must-have. And so anybody that's building needs to have this ability. Anybody that's building requires optimization of those experiences. Otherwise, they're just throwing money away, and so we help them get the return on all of those digital product investments they're making.

Okay. So you joined November of last year. You've seen about 6 months of demand environment for Amplitude. And so the question really becomes, what are you seeing out there today? How do you compare to when you first joined the company? And what's interesting about Amplitude is when you look at the financials, there's a headwind from big pandemic contracts kind of flowing through the revenue model, but you maybe missed or can't see kind of the growth in demand out there because of these big contracts coming through. So help us understand what you see out there and how would you compare it to when you first joined?

Yes, I'll give you my experiences and then you can add on, on kind of the broader environment. One of the big things that I did just joining the company was spending a lot of time with customers. Every day, I'm engaging with a customer, whether they're the largest customer or prospect, and I'm using that to learn. And the enthusiasm for Amplitude is higher than I would have anticipated, people are looking for our guidance to help them build. I was in Europe 2 weeks ago, visited -- I don't say I met with over 200 different customers there. And they want the power of Amplitude and they need that help to figure out how do we drive growth, how do we drive PLG, how do we drive these things. And so to me, it's a great signal of the fact that there's an immense opportunity to deliver more value. Now based on where we are and in order to fulfill that opportunity, I think there's 3 fundamental opportunities or fundamental things we have to do. Number one is we need to make our products radically simpler to use, radically easier to install, to acquire, to use and to get value. And that is critical because as we move from our core digital native installed base to the more traditional companies, we're essentially crossing that CASM and ease of use is not a nice to have. It's a requirement. And so as we're completely revamping our product line with ease of use as the #1 priority. And that will enable us to not only reach more companies but more people at those companies who need the value that we bring, number one. Number two, in all those conversations, we've seen a desire to consolidate more into our platform. And so we've been on this transformation from going -- from being a product company to a platform company and building more capabilities that build on the platform. In addition to our product analytics, we've added experimentation, our CDP, session replay, and our customers are starting to consolidate their spend from multiple point solutions to Amplitude at the heart of that. And that really becomes an important opportunity because all those solutions become stronger, more powerful with analytics at the center. And that accelerates our flywheel. Then last but not least, as we go to the enterprise and those larger accounts, we need to continue to bolster our enterprise capabilities. In order to win the enterprise, you need security, governance and compliance. And we have a lot of those things, but we're continuing to learn more to meet the needs of the largest, most rigorous companies in the world. And this is why we have some of the largest brands, the most trusted brands in the world built on Amplitude. So to me, again, that gives me that confidence of what we're building and how customers are reacting to the product.

Let me just add on to the macro comments specifically. Last quarter, during our earnings, we called out, look, there are still challenges out there in the environment. Companies continue to optimize on the top end from pandemic area contracts. Certainly, on the VC side of things in small business, stuff still remains challenging on a variety of fronts. I think explicitly, we have been asked by many investors are we seeing incremental SMB weakness that has been called out by a lot of peers. And the reality is, no, not really. I think for better or worse, we've been one of those companies given our exposure to digital natives and the venture capital community, where we've been living for -- living with this reality and volatility for a little bit. So we haven't seen incremental change to the downside on that front. More importantly, it's making [indiscernible] our guidance and outlook. I'd say we're explicitly not assuming any improvement in the small business environment through the end of the year. And we feel pretty comfortable managing for the unknowns out there. I think another line that's worth noting and remembering is we continue to say that new ARR remains healthy on a variety of fronts, offset by churn optimization. Now that's pretty key, right, understanding where we are in the market in terms of penetration, but our priority is that, that new AR remains healthy even in an environment like this. And we continue to see a bunch of green shoots on a bunch of fronts as we called out, whether it's post renewal, customers are much healthier in terms of relationships and health. We've talked about the lack of a double dip when customers optimize with us one time, the majority of them actually renew flat or grow off that base. And I think more importantly, we're starting to see healthier cohorts flow through. We called out that customers from second half '22 onward, exhibiting gross and net retention characteristics on average, 5 to 10 percentage points higher than customers signed during the pandemic. So I'd say we're in the [ troughing ] process, there's healthy visibility on new business, and we're managing it through this year. So that's more explicit in the macro commentary, Koji.

Question on AI. I'm going to ask every company this AI question. I asked everybody this question last year. But I think it's interesting because now the end markets that you guys serve has had time to kind of digest all this, I don't know if noise is the right word or marketing material, new -- whatever it may be. They've had 1.5 years to really try and figure out or maybe they're still trying to figure out what does it all mean? So the question for you is what does AI mean for you from a customer awareness of what they need to do? Do they view it as a threat or an opportunity? Is it actually a potential tailwind for adoption for you guys? Or do you kind of view AI as a risk?

I think AI is a huge opportunity for our industry and for our company as well. But we're still in the early innings. Last year, we're definitely in the peak of the hype of AI. And I think we're still in that hype moment where most companies are experimenting and trying to figure out what is their AI strategy and they're trying lots of different things. Specifically, there's 3 big focus areas. Number one is obviously, we're adding AI into our own products. We introduced, for instance, Amplitude AI, which has capabilities like Ask Amplitude, which is natural language query built into Amplitude. That simplifies our experience, enables more people to ask richer, more sophisticated questions without the complexity of having to learn our product. And we're seeing some nice adoption on that front. We've added a lot of capabilities throughout the product. It just refines the experience and again, increases that ease of use. So clearly, it's beneficial to us and our customers. But the second is, as customers are building more LLM apps, they're building AI apps. Well, all those AI apps are going to need product analytics, because those customers [ really ] want to understand, am I getting value from that? Is that delivering the outcomes that I want? So increasingly, we're seeing these customers starting to instrument those apps with Amplitude to know where our customer is getting frustrated. Is it delivering the value that wanted? Where is their drop on? And they're using that to then refine their models and build better applications. I'd say we're still in the early innings on that front. Along the same lines, we're starting to see some of the largest AI companies, companies like Midjourney or Character AI that are building the future of AI, they're building on Amplitude. Amplitude is a core part of how they deliver their solutions in the market to build the AI future that we're all living in. And so I think that's a huge, huge, huge signal there of where we might go as more of these AI apps get developed. Finally, I think there's an opportunity for us to also build transformative capabilities within Amplitude using the power of AI. And what we call the self-improving product. So there's clearly simplification, there's augmentation. And now this last category is really all about automation. And the analogy I like to use internally is prior to Amplitude, most customers, it was kind of like the maps roll. Prior to Amplitude, you had a physical map. If you want to go somewhere, use a printed map and then you drew out your destination. When Amplitude came in, it was more like Google Maps. It's available everywhere. It gives you that freedom, self-service to look at that journey. I want to avoid tolls, I want to avoid traffic. Amplitude gives you that visibility. Now the future is really more like the self-driving cars, which is still early in the market. But how does the product continuously improve itself based on user behavior and based on the data that's there? So AI will help automate a lot of that.

You've been in the data world for a long time.

Long time.

And curious to hear your thoughts. The question is going to be about how to visualize or place Amplitude in the tech stack. I remember when Amplitude was first dropped on my desk many years ago, and my first thought was I don't know where this thing actually goes, frankly. And so you've seen a lot. And I think I understand where it goes today. But very curious to hear from you how you contextualize where does Amplitude today, where could it potentially fit in the future?

Well, look, ultimately, what we have built is an opinionated verticalized solution targeting the product-building vertical, if you will, where we've added not just access to data, it's not a reporting solution. It's really an opinionated solution to solve the product building use case. And you look at that and it becomes important because as people are building more products, well, in fact, if you look at the future, will there be more products created? Yes. Will there be more people that need access to the insights from those products? Yes. Will there be more data generated by these apps, more events? Yes. All those things, to me, are the key ingredients of what Amplitude provides. And so we're really helping our customers understand funnel conversion, understand retention, understand what drives growth. And I think that this becomes more important in the future because people aren't just looking at delivering technology, they're trying to deliver business outcomes. The business outcomes become much more important today than they have ever been. And I think that's where Amplitude goes is really connecting the business with the product delivery, so that you're getting more results out of all of your digital investments. That, I think, is where the opportunities are. And as we look at the amount of data that's growing, there's more data, obviously, that's being generated every day. There are more sources of customer data being generated every day. And we help stitch that all together to provide that complete view of the customer, the user experience and help them optimize everything along that way.