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LiveRamp (NYSE:RAMP) Surprises With Q2 Sales, Stock Soars


Full Report / November 02, 2021
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Advertising data platform LiveRamp (NYSE:RAMP) beat analyst expectations in Q2 FY2022 quarter, with revenue up 21.6% year on year to $127.2 million. On the other hand, guidance for the next quarter slightly missed analyst expectations with revenues guided to $139 million, or 0.72% below analyst estimates. LiveRamp made a GAAP loss of $6.43 million, improving on its loss of $23.9 million, in the same quarter last year.

LiveRamp (RAMP) Q2 FY2022 Highlights:

  • Revenue: $127.2 million vs analyst estimates of $124.1 million (2.56% beat)
  • EPS (non-GAAP): $0.26 vs analyst estimates of $0.05 ($0.21 beat)
  • Revenue guidance for Q3 2022 is $139 million at the midpoint, below analyst estimates of $140 million
  • The company reconfirmed revenue guidance for the full year, at $525 million at the midpoint
  • Free cash flow of $10 million, up from negative free cash flow of -$17.67 million in previous quarter
  • Net Revenue Retention Rate: 108%, in line with previous quarter
  • Customers: 870, up from 855 in previous quarter
  • Gross Margin (GAAP): 72.4%, up from 66.6% same quarter last year

Started in 2011 as a spin-out of RapLeaf, LiveRamp (NYSE:RAMP) provides software as a service that helps companies better target their marketing by merging offline and online data about their customers.

In a world where shopping happens not only in physical stores but also online, on multiple devices and through multiple channels, organizations are struggling to keep track of their customers' interests. LiveRamps platform integrates all the data advertisers have about their (potential) customers, both online and offline and provides them with tools that allow them to use it to target advertising.

For example, after a customer purchased a new kitchen robot in a company’s physical store, LiveRamp can help the company match the details of the customer with their database and enable them to target the customer with online ads for additional accessories for that particular type of a kitchen robot.

The advertising market is massive, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need to automate and optimize ad placements, which requires reliable data, and that is where platforms like LiveRamp come into play.

Competitors include The Trade Desk (NASDAQ:TTD), Nielsen, and Oracle (NYSE:ORCL).

Sales Growth

As you can see below, LiveRamp's revenue growth has been decent over the last year, growing from quarterly revenue of $104.6 million, to $127.2 million.

LiveRamp Total Revenue

This quarter, LiveRamp's quarterly revenue was once again up a very solid 21.6% year on year. On top of that, revenue increased $8.25 million quarter on quarter, a strong improvement on the $137 thousand decrease in Q1 2022, and a sign of re-acceleration of growth, which is very nice to see indeed.

Analysts covering the company are expecting the revenues to grow 17.7% over the next twelve months, although estimates are likely to change post earnings.

Customer Growth

You can see below that LiveRamp reported 870 customers at the end of the quarter, an increase of 15 on last quarter. That is a bit slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

LiveRamp Customers

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

LiveRamp Net Revenue Retention Rate

LiveRamp's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 108% in Q2. That means even if they didn't win any new customers, LiveRamp would have grown its revenue 8% year on year. That is a decent retention rate and it shows us that not only LiveRamp's customers stick around but at least some of them get increasing value from its software over time.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. LiveRamp's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 72.4% in Q2.

LiveRamp Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from LiveRamp's Q2 Results

With a market capitalization of $3.73 billion LiveRamp is among smaller companies, but its more than $535.5 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see LiveRamp outperform Wall St’s revenue expectations this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see the slowdown in customer growth and that revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better but investors seem to receive the news positively as the company is up 5.05% on the results and currently trades at $56.1 per share.

Is Now The Time?

When considering LiveRamp, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although we have other favorites, we understand the arguments that LiveRamp is not a bad business. Its revenue growth has been solid, and analysts believe that sort of growth is sustainable for now. And while its gross margins aren't as good as other tech businesses we look at, the good news is its very efficient customer acquisition hints at the potential for strong profitability.

LiveRamp's price to sales ratio based on the next twelve months is 6.4, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that LiveRamp doesn't trade at a completely unreasonable price point.

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