Down 88%, This Growth Stock Could Be Set for a Recovery in 2025

Tech stocks saw a boom year in 2021 as they soared through the tail end of the pandemic. But tech stocks that went public during that year got stuck between a bull and bear market.

Amplitude (NASDAQ: AMPL) is one such example. The software-as-a-service stock, which specializes in digital analytics and digital product optimization, went public in September 2021. The stock initially soared out of the gate on the broader enthusiasm for the software sector and the company's strong growth at the time of its market debut.

However, like the rest of the software sector, its growth rate rapidly slowed as the economy reopened and businesses focused on other priorities. The stock plunged in late 2021 and 2022, and has remained down since then. Amplitude is now down 88% from its peak shortly after its initial public offering, but signs are emerging of a rebound. Let's take a look at three reasons the stock could jump in 2025.

Image source: Getty Images.

1. Customer churn is finally under control

Part of the reason for the company's struggles over the last few years is that many of its customers, like other software companies experienced, overcommitted to the platform -- and as a result, revenue growth decelerated and remained weak since 2021. However, the company is now past most of those customers' defections, essentially clearing the deck for a growth recovery in 2025.

CEO Spenser Skates said on the earnings call:

... ARR [annual recurring revenue] and revenue reacceleration are both well within our reach. This quarter sets us firmly on that path. While we are making progress, there is still plenty of work to do. We are past the significant majority of overbought to optimization contracts, but churn is still too high.

Annual recurring revenue in the quarter was up 8% to $298 million, slightly ahead of reported quarterly revenue, which was up 6% to $75.2 million -- a positive sign for accelerating growth. The company continues to expand its base of large customers; those with annual recurring revenue of at least $100,000 were up 13% to 567.

Amplitude's revenue growth figure was artificially suppressed by the post-pandemic customer churn and as that disappears, its growth rate should return to double digits. As one indicator of that, its remaining performance obligations (RPO, a proxy for backlog) was up 21% in the quarter to $286.6 million, and long-term RPO (contracts greater than 12 months) jumped 49% to $75.5 million. The company said this was the result of closer relationships with its customers and investments in the enterprise segment, meaning larger customers.

2. It may pry customers away from competitors

Amplitude offers a suite of tools to help businesses understand how their customers are using their products so they can improve them, and considers its closest competition to be Alphabet's Google Analytics and Adobe Analytics.

According to CEO Spenser Skates, Amplitude's customers are growing increasingly dissatisfied with Google Analytics, which Skates said was "creating a long tail of opportunities for Amplitude" as customers are "dissatisfied with its [Google's] persistent usability problems and unresolved privacy issues."

Amplitude can grow along with the market for digital optimization, but it can also grow by taking market share from larger competitors like Google and Adobe.

The company estimated its total addressable market to be $37 billion when it went public, and it's likely larger than that today. At its current revenue run rate, Amplitude generates less than 1% of that in revenue, meaning the opportunity in front of it is huge if it can capitalize on it. Any challenges at Google Analytics should open the door for improved revenue growth.

3. The Command AI acquisition should boost growth

Amplitude made its biggest acquisition to date in October, buying Command AI, a start-up that provides AI-powered user assistance. Command AI serves as a complement to Amplitude's existing analytics platform, and offers more of the features that its customers are looking for. It will allow them to add things like nudges, tours, onboarding guides, and surveys for their own users to use with their digital products. In an interview with The Motley Fool, Skates explained, "A lot of our customers have been asking for this sort of functionality for a while," and noted that the company is planning to launch a combined product early next year.

Command AI is just one component of what Amplitude is doing to expand its product portfolio. The company also launched a new program called Amplitude Made Easy, which gives customers a single line of code to get up and running, and Web Experimentation, which allows users to run A/B tests in a self-serve way.

Overall, Amplitude's third-quarter revenue growth of 6% isn't going to turn investors' heads. But you can see momentum building around the corner in its 21% RPO growth, customer churn rolling off, competitive weakness from Google, and product improvements. If revenue growth starts to accelerate, the stock could soar.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Alphabet. The Motley Fool has a disclosure policy.