Shares of product analysis tools maker Amplitude on Tuesday jumped six percent from their IPO price of $50 shortly after the shares began trading on the Nasdaq under the ticker symbol “AMPL.”
The shares were listed as a direct listing, without the traditional IPO underwriting by a banking syndicate. As such, there was no formal offer price. A “reference price” of $35 had been established in advance of trading, and the first trade of $50 immediately blew past that.
Shares went on to rise another 7% in afternoon trading, to $53.66.
“I hope the traditional IPO goes away,” co-founder and CEO Spenser Skates told ZDNet, speaking from the Nasdaq Market Site in Manhattan following the start of trading.
“The traditional IPO massively underprices companies,” he said, alluding to the way that stocks typical soar from their offer price, leaving lots of money on the table for the company selling shares. “You’re selling a dollar of your stock for 50 cents,” he said, “that is the craziest thing in the world I’ve ever heard.”
“It made sense at the time, because you needed bankers to offer your stock,” Skates selected. “But these days, there’s so much information, lots of public investors known about Amplitude, and other growth-stage companies, and SaaS, it’s a very well-understood model.
Despite having no love for the traditional IPO, Skates said the company worked closely with Morgan Stanley to prepare the direct listing. “We’re well set up” for any follow-on equity offerings if the company ever needs to do that with a formal banking syndicate, said Skates.
Nine-year-old Amplitude makes programs to observe how a person moves through a piece of software and recommend to the software’s creator improvements that would make the program more successful.
“There is a huge revolution going on in the product world,” said Skates. The software industry is moving “from Mad Men to Moneyball,” he said. Once upon a time, product teams would simply decide on a given feature and order devs to build it, “like, saying, Hey, this is the feature to build, with a gut feeling, and not real data.”
In the new world, said Skates, “the best companies out there are using a quantitative approach to build their products.”
Skates compares the Amplitude tools to the kinds of rapid development that happens based on observing users at Facebook and Netflix. “We’re bringing that exact same methodology to the rest of the market.”
Amplitude claims its graph of user behavior is able to reflect how an individual moves though an application, for the purpose of then analyzing what makes an app successful or not. As the company describes it in its offering prospectus,
Unlike traditional marketing funnels where the goal is strictly increasing the conversion rate to the next step, users do not take a linear journey through a digital product. Based on our customer data, we estimate that, on average, there are approximately 2,500 distinct events that can be measured within each digital product. Each user therefore navigates through an application across multiple devices in a random walk that is unique from every other user. This effect makes it much harder to understand what is happening in the aggregate and generate insights at scale.
The inspiration for the software came from a prior startup project, Sonolight, a speech recognition program, during which Skates and co-founder Curtis Liu had sought ways to improve their own product development process.
Skates and Liu are both graduates of MIT, where the duo won the college’s programming competition, Battlecode, in 2009 and 2010.
“We built a lot of this in-house because we thought it’s so obvious, you need to look at the data,” said Skates. “We found really quickly every other product person wanted it.”
Amplitude has numerous prominent customers, including Twitter, Wal-Mart, and Peloton.
Asked what the proof is of return on investment, Skates cited prominent examples where the Amplitude software helped a company to improve its app. For example, Peloton learned that interaction features would boost the amount by which users did workouts.
“Peloton is a great example: they figured out really early on by using Amplitude that riders who had some sort of interaction with the instructor or a friend were much more likely to develop a habit about working out,” Skates explained. Things such as “high fives” and “leaderboards” are similar kinds of tools.
Similarly, the Calm smartphone app for meditation changed its app to feature daily reminders as a result of studying app behavior with the Amplitude tools, he said.
“One of the first things they found out with Amplitude is that people who set a daily reminder to meditate are 3 times more likely to build a long-term habit around it,” said Skates.
“That was huge for them because they had the reminder buried behind all these menus, but they re-architected the app to bring it to the front, and they realized a huge part of their value was helping you develop a habit around meditation.”
Amplitude claims it has a lead over anyone else doing product analysis based on customer wins:
We have consistently been ranked as the #1 product analytics solution, as well as a top 50 software product of 2021 across all categories. As of December 31, 2019 and 2020 and June 30, 2021, we had more than 700, 1,000, and 1,200 paying customers, respectively, with 208, 262, and 311 customers, respectively, that each represented greater than $100,000 in ARR and 11, 15, and 22 customers, respectively, that each represented greater than $1 million in ARR, demonstrating how highly strategic and mission critical we are to our customers.
Asked about dev tools, such as application performance management, things such as New Relic and Datadog, Skates said the Amplitude tools don’t directly integrate with those tools but they bring a mindset to product development that is more in accord with the engineering mindset.
“Datadog and New Relic have done a wonderful job serving the engineer, but there hasn’t been to date anyone on the product side that does that,” explained Skates. “The engineers are very quantitative about what they do but the product managers aren’t, and it drives the engineers nuts.”
“One of the beauties of something taking a data-driven approach is that it actually gets buy-in from engineering teams” because they can see how changes in an app lead to immediate improvement on measurable outcomes such as engagement.
Asked about how developers can create the best long-term experience, Skates said product developers need to look past short-term goals.
“The less-sophisticated team will just try to maximize how many daily active users you have,” observed Skates. “If you try to measure that as what your goal is, you’re going to spam your users, you’re not going to create a good experience — it doesn’t serve them and it doesn’t serve customers.”
“We encourage every team to create a product north star,” he said, “which is a metric that shows someone has used a product successfully.” The company makes recommendations on what to track and what not, he said.
According to the prospectus, Amplitude had revenue of $72.36 million, and a net loss of $16.5 million, in the six months ended this year. Revenue in that period rose 57%. The company has a 69% gross profit margin.
Amplitude’s cash used in operations during the period totaled $5.5 million, for a negative free cash flow rate of $6.9 million. That is an improvement from an $11 million cash burn in the year-earlier period.
The company had 1,280 customers at last count, a 51% year-over-year increase, and a net retention rate of 119%.
The company’s customers representing annualized recurring revenue greater than $100,000 was 311 in the six-month period, an increase of 40%. The customer had 22 customers bringing in more than $1 million in ARR, it said.
Remaining performance obligation in the six-month period rose 45% to $138.9 million.