Advertising data platform LiveRamp (NYSE:RAMP) reported results ahead of analysts' expectations in Q2 FY2024, with revenue up 8.7% year on year to $159.9 million. The company also expects next quarter's revenue to be around $165 million, in line with analysts' estimates. Turning to EPS, LiveRamp made a non-GAAP profit of $0.43 per share, improving from its profit of $0.22 per share in the same quarter last year.
LiveRamp (RAMP) Q2 FY2024 Highlights:
- Revenue: $159.9 million vs analyst estimates of $152.3 million (4.9% beat)
- EPS (non-GAAP): $0.43 vs analyst estimates of $0.24 ($0.19 beat)
- Revenue Guidance for Q3 2024 is $165 million at the midpoint, above analyst estimates of $163.6 million
- The company lifted its revenue guidance for the full year from $625 million to $634.5 million at the midpoint, a 1.5% increase (also lifted guidance for operating profit)
- Free Cash Flow of $35.56 million, up 38.7% from the previous quarter
- Net Revenue Retention Rate: 101%, up from 98% in the previous quarter
- Customers: 895, down from 915 in the previous quarter (miss)
- Gross Margin (GAAP): 74.2%, up from 71.2% in the same quarter last year
Started in 2011 as a spin-out of RapLeaf, LiveRamp (NYSE:RAMP) is a software-as-a-service provider 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. As a result, there is a growing need for 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).
As you can see below, LiveRamp's revenue growth has been mediocre over the last two years, growing from $127.3 million in Q2 FY2022 to $159.9 million this quarter.
LiveRamp's quarterly revenue was only up 8.7% year on year, which might disappoint some shareholders. However, we can see that the company's revenue increased by $5.80 million in Q2, up from $5.44 million in Q1 2024. This gives up hope that growth could be re-accelerating.
Next quarter's guidance suggests that LiveRamp is expecting revenue to grow 4% year on year to $165 million, slowing down from the 12.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 5.5% over the next 12 months before the earnings results announcement.
LiveRamp reported 895 customers at the end of the quarter, a decrease of 20 from the previous quarter. That's slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.
One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
LiveRamp's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 101% in Q2. This means that even if LiveRamp didn't win any new customers over the last 12 months, it would've grown its revenue by 1%.
Significantly up from the last quarter, LiveRamp has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 74.2% in Q2.
That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, LiveRamp's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. LiveRamp's free cash flow came in at $35.56 million in Q2, up 90.2% year on year.
LiveRamp has generated $107.4 million in free cash flow over the last 12 months, a solid 17.3% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from LiveRamp's Q2 Results
Sporting a market capitalization of $1.96 billion, LiveRamp is among smaller companies, but its more than $524.1 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
Despite a miss on direct subscription customers (a number that decreased year on year), the company beat on all other key line items like revenue, adjusted operating profit, and adjusted EPS. We were also impressed by LiveRamp's strong gross margin improvement this quarter and its increase in net revenue retention. The major positive is that guidance was strong and full year guidance in particular was raised across the board. Zooming out, we think this was great quarter, showing that the company is staying on track. The stock is up 14.1% after reporting and currently trades at $34.2 per share.
Is Now The Time?
When considering an investment in LiveRamp, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
We cheer for everyone who's making the lives of others easier through technology, but in case of LiveRamp, we'll be cheering from the sidelines. Its revenue growth has been weak over the last two years, and analysts expect growth to deteriorate from here. And while its very efficient customer acquisition hints at the potential for strong profitability, unfortunately its customer are spending less on average over the last year, which gives us pause.
LiveRamp's price to sales ratio based on the next 12 months is 3.1x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.
To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.