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LiveRamp (NYSE:RAMP) Beats Q4 Sales Targets But Full Year Guidance Underwhelms


Full Report / May 24, 2022
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Advertising data platform LiveRamp (NYSE:RAMP) reported Q4 FY2022 results topping analyst expectations, with revenue up 18.9% year on year to $141.7 million. However, guidance for the next quarter was less impressive, coming in at $139 million at the midpoint, being 2.58% below analyst estimates. LiveRamp made a GAAP loss of $29.3 million, improving on its loss of $32.8 million, in the same quarter last year.

LiveRamp (RAMP) Q4 FY2022 Highlights:

  • Revenue: $141.7 million vs analyst estimates of $222.6 million (1.7% beat)
  • EPS (non-GAAP): -$0.01 vs analyst estimates of $0.02 (-$0.03 miss)
  • Revenue guidance for Q1 2023 is $139 million at the midpoint, below analyst estimates of $142.6 million
  • Management's revenue guidance for upcoming financial year 2023 is $616.5 million at the midpoint, missing analyst estimates by 2.64% and predicting 16.6% growth (vs 19.4% in FY2022)
  • Free cash flow of $57 million, up 136% from previous quarter
  • Net Revenue Retention Rate: 110%, in line with previous quarter
  • Customers: 905, up from 890 in previous quarter
  • Gross Margin (GAAP): 72.1%, up from 68.4% 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 digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.

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 solid over the last year, growing from quarterly revenue of $119.1 million, to $141.7 million.

LiveRamp Total Revenue

This quarter, LiveRamp's quarterly revenue was once again up 18.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $1.12 million in Q4, compared to $13.3 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates LiveRamp is expecting revenue to grow 16.7% year on year to $139 million, slowing down from the 19.7% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $616.5 million at the midpoint, growing 16.6% compared to 19.4% increase in FY2022.

Customer Growth

You can see below that LiveRamp reported 905 customers at the end of the quarter, an increase of 15 on last quarter. That is a little 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 110% in Q4. That means even if they didn't win any new customers, LiveRamp would have grown its revenue 10% year on year. Trending up over the last year, this 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, licenses, technical support and other necessary running expenses was at 72.1% in Q4.

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. Trending up over the last year 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.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. LiveRamp's free cash flow came in at $57 million in Q4, turning positive year on year.

LiveRamp Free Cash Flow

LiveRamp has generated $73.5 million in free cash flow over the last twelve months, a solid 13.9% of revenues. This strong FCF margin is a result of LiveRamp asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from LiveRamp's Q4 Results

With a market capitalization of $1.7 billion LiveRamp is among smaller companies, but its more than $600.1 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

LiveRamp topped analysts’ revenue expectations this quarter, even if just narrowly. On the other hand, it was unfortunate to see that LiveRamp's revenue guidance for the full year missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 1.12% on the results and currently trades at $22.75 per share.

Is Now The Time?

LiveRamp may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think LiveRamp is a good business. However, its revenue growth has been a little slower, and analysts believe that rate will remain roughly steady. But on a positive note, its very efficient customer acquisition hints at the potential for strong profitability, and its strong free cash flow generation gives it re-investment options.

LiveRamp's price to sales ratio based on the next twelve months is 2.5x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. There is definitely a lot of things to like about LiveRamp and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $69.7 per share right before these results, implying that they saw upside in buying LiveRamp even in the short term.

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