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LiveRamp (NYSE:RAMP) Exceeds Q1 Expectations But Full Year Guidance Underwhelms


Full Report / September 29, 2022
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Advertising data platform LiveRamp (NYSE:RAMP) beat analyst expectations in Q1 FY2023 quarter, with revenue up 19.4% year on year to $142.2 million. On the other hand, guidance for the full year missed analyst expectations with revenues guided to $595 million at the midpoint, or 2.96% below analyst estimates. LiveRamp made a GAAP loss of $27.2 million, down on its profit of $17.3 million, in the same quarter last year.

LiveRamp (RAMP) Q1 FY2023 Highlights:

  • Revenue: $142.2 million vs analyst estimates of $138.9 million (2.35% beat)
  • EPS (non-GAAP): $0.05 vs analyst estimates of $0.01 ($0.04 beat)
  • Revenue guidance for Q2 2023 is $144 million at the midpoint, above analyst estimates of $142.8 million
  • The company dropped revenue guidance for the full year, from $616.5 million to $595 million at the midpoint, a 3.48% decrease
  • Free cash flow was negative $35.1 million, down from positive free cash flow of $57 million in previous quarter
  • Net Revenue Retention Rate: 113%, up from 110% previous quarter
  • Customers: 910, up from 905 in previous quarter
  • Gross Margin (GAAP): 71.1%, in line with 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 million, to $142.2 million.

LiveRamp Total Revenue

This quarter, LiveRamp's quarterly revenue was once again up 19.4% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $518 thousand in Q1, compared to $1.12 million in Q4 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 13.1% year on year to $144 million, slowing down from the 21.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 16.3% over the next twelve months.

Customer Growth

You can see below that LiveRamp reported 910 customers at the end of the quarter, an increase of 5 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 113% in Q1. That means even if they didn't win any new customers, LiveRamp would have grown its revenue 13% year on year. Significantly up from the last quarter, this a good retention rate and a proof that LiveRamp's customers are satisfied with their software and are getting more value from it over time. That is good to see.

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 71.1% in Q1.

LiveRamp Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still 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 burned through $35.1 million in Q1, increasing the cash burn by 98.7% year on year.

LiveRamp Free Cash Flow

LiveRamp has generated $56.1 million in free cash flow over the last twelve months, a solid 10.1% 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 Q1 Results

With a market capitalization of $1.93 billion LiveRamp is among smaller companies, but its more than $508.2 million in cash and positive free cash flow over the last twelve months give us confidence that LiveRamp has the resources it needs to pursue a high growth business strategy.

It was good to see LiveRamp improve their net revenue retention rate this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that LiveRamp's revenue guidance for the full year missed analyst's expectations and there was a slowdown in customer growth. Overall, it seems to us that this was a complicated quarter for LiveRamp. The company currently trades at $19.3 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. Although LiveRamp is not a bad business, it probably wouldn't be one of our picks. Its revenue growth has been a little slower.

LiveRamp's price to sales ratio based on the next twelve months is 3.0x, suggesting that the market has lower expectations of the business, relative to the high growth tech stocks. In the end, beauty is in the eye of the beholder. While LiveRamp wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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