Is your initial public offering (IPO) calendar full yet? It’s a busy season for IPO’s, but software company Amplitude (NASDAQ:AMPL) just went public and AMPL stock stands apart from the slew of investable start-ups.
But here’s something you probably didn’t expect: Amplitude actually didn’t go public through an IPO. Indeed, the company’s CEO harbors disdain for traditional IPO’s – and perhaps for a good reason.
Clearly, this company and its CEO aren’t afraid to wander off of the beaten path. If you plan to invest in AMPL stock, you’ll definitely want to keep an open mind.
Moreover, be prepared for a possible roller-coaster ride as the process of price discovery is still under way. New stocks can be exciting, profitable and risky – and Amplitude could be all of these things, and more.
A Closer Look at AMPL Stock
In its Nasdaq debut on Sept. 28, AMPL stock opened at $50 per share. That’s quite a jump from the stock’s reference price of $35.
As InvestorPlace contributor Chris MacDonald reported, the share price shot up to an intra-day high of $54.90. That’s not too shabby, considering that the Nasdaq closed down nearly 3% that day.
Interestingly, the following days didn’t see much movement in AMPL stock. For the time being, Wall Street seems content to keep the stock near $55.
Of course, we’re still in the very early innings with Amplitude. The process of price discovery takes time, and for all we know, the shares could still drift much higher.
Or, AMPL stock could settle back to the reference price of $35. Therefore, as with most newly listed stocks, I strongly recommend keeping your position size small.
Before diving into the details of Amplitude’s business, I have to address an elephant in the room.
The company’s CEO, Spenser Skates caused a bit of a stir when he called traditional IPO’s “antiquated” not long ago.
His argument, apparently, was that companies who go that route often end up under-pricing their shares.
There’s merit to that argument, though I’m not expecting IPO’s to go the way of the dodo bird anytime soon.
It probably would have been more tactful for Skates to say that using a direct listing instead of an IPO was the right move for his company.
MacDonald concisely summarized direct listings as “equity offerings in which no new shares are offered,” and wherein “existing investors are not diluted, but the company does not raise additional capital to fund growth.”
Evidently, Skates isn’t too concerned about not raising additional capital from Amplitude’s direct listing.
His company is “very well set up for the future” with the cash it currently has, Skates assured.
The Science of Digital Optimization
So, maybe Amplitude did the right thing by having a direct listing of its shares. But, what exactly does this start-up company do, anyway?
To use a little bit of jargon, Amplitude makes software that helps businesses conduct “digital optimization.”
That’s a fancy way of saying that Amplitude helps companies learn more about consumer behavior across their online enterprises.
This would include useful information about “what features people are using, what they like, and where they get stuck,” according to Amplitude’s CEO.
Here’s an example. Home exercise equipment maker Peloton Interactive (NASDAQ:PTON) used Amplitude’s tools to help determine that its customers are more likely to engage in future workouts if they’ve been involved in social interactions through Peloton’s platform (according to Skates).
Supposedly, this critical information prompted Peloton to add more social features to its product.
It’s interesting to consider how other businesses could benefit from similar trend-tracking customer data.
However, it remains to be seen whether Amplitude can turn this into a profitable venture. For the first six months of 2021, the company posted a net earning loss of $16.5 million.
The Bottom Line
Clearly, Amplitude is taking digital optimization seriously. It’s a fascinating niche market with growth potential in the 2020’s.
Nonetheless, AMPL stock remains a “show-me the money” investment until Amplitude can flip to a positive earnings profile.
Still, you have to hand it to Amplitude and its CEO: they’re fearless and forward-looking, and surely we haven’t heard the last from them.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.