Update: AMPL direct listing opens at $50.27 for a market cap of $5B or close to $6B fully diluted. Not cheap but not insane (in this market). I bought some on the open and we will see where it goes.

Product management has always been an important “x-factor” in the software business. During the 1990s all the winning software stocks I covered had excellent product management. BEA Systems, Rational Software, IONA, Atria Software, and Business Objects to name some. The trend continued with SaaS names we own now like Twilio (TWLO) and Workiva (WK).

It used to be more art than science and really came down to the person in the job. But this isn’t your father’s enterprise software market anymore (unless you are at Oracle or SAP anyway… ;-).

Digital products create an opportunity to use data instead. If Google had access to this technology many years ago when they proudly replaced all their product managers with people who “by design had no experience” they would have done *much* better – especially with products like Google Finance. Fortunately for them, they are Google which means abject failure in products like Google Finance has zero impact on the company.

What’s Interesting About Amplitude (AMPL)

They built a proprietary data store that is optimized to handle the data they collect and the queries they process. The team really understands the nature of scale and sub-second response time. One of the founders could hardly contain his excitement talking about 850 millisecond response time. I like that a lot.

By creating a closed-loop system the decision-making process around digital product management is made more efficient with less guesswork and cycle times are reduced. If retail is all about inventory turns then digital product management is about the cycle time in making the highest priority improvements to the code base.

Customers ramp fast. “Land and expand” is the mantra in SaaS but the ramp here is steeper than most. It doesn’t take long for a customer to reach $1M+ ARR. They have 22 already over that threshold.

Their product architecture lends itself well to profitable growth from volumes and also from new products that can be layered onto existing customer relationships. For example, the addition of Recommendations and Explorer are meaningful add-on products for existing customers while they also improve the attractiveness of the platform to new customers.

Valuation Parameters

Since this is a direct listing we don’t really know what price we are going to be offered as new investors. As of today, the shares outstanding are 46.1M Class A (registered to trade) and 56.6M Class B which are exchangeable 1:1 for Class A. That’s about 103M shares outstanding. There are also about another 15M shares related to options and restricted stock.

Based on the hypothetical share price from the last Series F of $32 that would put the market cap at $3.6B. For FY 2021 the company expects revenues of ~$160M which puts the valuation at 22x CY sales. Sales were up 66% in the recent quarter. The long-term model is typical for an enterprise software SaaS player with 20-25% operating margins over the long term.

They are not going to be making money for a long time as they point out that they will be investing heavily in what they see as a massive “greenfield” opportunity in digital product management.

Conclusions

This will be a stock institutions want to own so we’ll have to see where the supply/demand settles out in terms of price. More importantly, though is how will this type of technology play out not only in the digital product category but also in terms of content and analog product sets.

It’s still early but over the next five or ten years these types of tools will be ubiquitous in all industries and closed-loop systems will be a requirement.

If you missed the investor day you can get our version of the slide deck on our current roadshow downloads page.

Since it is a direct listing the supply is not so easy to measure. I’d say it’s a name to have some position in initially as we watch how their future unfolds.

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