Down 91%, this software stock may finally be ready for a comeback

There’s bad timing, and then it’s taking your cloud software company public in September 2021 — just two months before the tech sector imploded as the pandemic-fueled boom came to a crushing end.

That’s exactly what happened Amplitude (AMP -3.25%)a cloud software company that focuses on digital product analytics, or helping companies understand how customers use and interact with their products.

Amplitude debuted on Nasdaq The stock traded at $50 a share and rose rapidly, hitting a record close of $84.80 in November.

However, like its peers, those gains quickly evaporated and its growth stalled as its technology customers focused on layoffs and retirements and consumers moved away from technology and back to spending habits before the pandemic.

Today, Amplitude shares are trading in the single digits, but after a long run, the stock may finally be ready to turn the corner. Let’s take a look at three reasons.

Image source: Getty Images.

1. The headwinds are finally picking up

Like the rest of the cloud software industry, Amplitude experienced a lot of turmoil in its customer base as the tailwinds of the pandemic faded.

Companies overestimated their need for software products in the work-from-home environment and reduced licenses through layoffs or simply cut bloated technology budgets in preparation for a recession that never came. In an interview with The Motley Fool, Spenser Skates CEO noted that the company lost two big contracts, but now has put that behind it, building it better to grow the business.

Skates said the contract reset cap with its enterprise customers occurred in the first half of this year, and the company now expects to see growth accelerate over the next few quarters and into next year.

That’s not immediately reflected in its guidance, as the company sees almost flat sequential growth in the third quarter, but it raised its full-year revenue estimates, now forecasting revenue of $294.5 million to $296.5 million , which reflects a growth rate. of 7%, up from a previous range of $292.5 million to $295.5 million.

Look for Amplitude to break out of this guidance as a sign that momentum is building again.

2. There is a new AI hook

Artificial intelligence (AI) is moving more slowly in the software arena than some investors would like, but Amplitude has found another way to capitalize on the opportunity in AI.

It’s getting interest from generative AI companies, including Midjourney, an image-generating AI; and Character.ai, a generative text-based AI chatbot.

It makes sense that those companies would want to work with Amplitude because they experience thousands or even millions of digital events every day that they should be analyzing to ensure they are serving their customers as best as possible.

Character.ai linked up with Amplitude over the past year and has grown rapidly. Skates said on the earnings call that Amplitude saw a huge amount of Character.ai and said Midjourney was just as big. Character.ai embraced Amplitude to refine its onboarding flow and help launch its new feature.

Amplitude is also developing its own AI assistant and search tool to help customers, but its utility for fast-growing generative AI platforms could emerge as a growth driver for the company.

3. Amplitude is best in class

Amplitude also won a valuable accolade last week. Named the sole leader in the Forrester Wave report on feature management and experimentation solutions.

Amplitude beat out eight other companies for the title and received the highest score in 11 of the categories. It also benefits from its integration between experimentation and analytics, as some of the companies it competes with in experimentation are point solutions, meaning they don’t offer the comprehensive set of analytics products that Amplitude does.

Skates emphasized that customers want a full suite of solutions to help them improve their product, including features the company recently added, such as session replay, allowing companies to see exactly what actions users took with their product. Amplitude’s CEO also said he expects the report to help Amplitude win more business from potential customers.

Is the stock a buy?

Amplitude’s recovery won’t happen overnight, but the stock has fallen enough that an acceleration in growth could trigger a rally in the stock.

I’d like to see clearer evidence in the numbers that growth is starting to return, but this stock is worth watching in the coming quarters as the potential to double or more is certainly there.