Advertising data platform LiveRamp (NYSE:RAMP) reported Q3 FY2024 results exceeding Wall Street analysts' expectations, with revenue up 9.6% year on year to $173.9 million. The company also expects next quarter's revenue to be around $160 million, slightly above analysts' estimates. It made a non-GAAP profit of $0.47 per share, improving from its profit of $0.28 per share in the same quarter last year.
LiveRamp (RAMP) Q3 FY2024 Highlights:
- Revenue: $173.9 million vs analyst estimates of $171.8 million (1.2% beat)
- EPS (non-GAAP): $0.47 vs analyst estimates of $0.40 (18.2% beat)
- Revenue Guidance for Q4 2024 is $160 million at the midpoint, above analyst estimates of $158.5 million
- Free Cash Flow of $14.35 million, down 59.7% from the previous quarter
- Net Revenue Retention Rate: 101%, in line with the previous quarter
- Customers: 895, similar to the previous quarter
- Gross Margin (GAAP): 74.2%, up from 72.7% in the same quarter last year
- Market Capitalization: $2.69 billion
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 unremarkable over the last two years, growing from $140.6 million in Q3 FY2022 to $173.9 million this quarter.
LiveRamp's quarterly revenue was only up 9.6% year on year, which might disappoint some shareholders. However, we can see that the company's revenue grew by $14 million quarter on quarter, re-accelerating from $5.80 million in Q2 2024.
Next quarter's guidance suggests that LiveRamp is expecting revenue to grow 7.7% year on year to $160 million, improving on the 4.9% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.1% over the next 12 months before the earnings results announcement.
LiveRamp reported 895 customers at the end of the quarter, flat versus the previous quarter. That's an welcome improvement from the trend of previous quarters, when the company was losing customers.
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 Q3. 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%.
LiveRamp has an adequate net retention rate, showing us that it generally keeps 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 Q3.
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. LiveRamp's gross margin is around the average of a typical SaaS businesses. It's encouraging to see its gross margin remain stable, indicating that LiveRamp is controlling its costs and not under pressure from its competitors to lower prices.
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 $14.35 million in Q3, down 8% year on year.
LiveRamp has generated $106.1 million in free cash flow over the last 12 months, a solid 16.9% 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 Q3 Results
We were impressed by LiveRamp's strong growth in customers this quarter. We were also glad next quarter's revenue guidance came in higher than Wall Street's estimates. Overall, this quarter's results seemed fairly positive. Investors were likely expecting more, however, and the stock is down 2.3% after reporting, trading at $41 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 think LiveRamp is a solid business. Although its , its very efficient customer acquisition hints at the potential for strong profitability. And while its existing customers have been reducing their spend, which is a bit of a concern, its strong free cash flow generation gives it re-investment options.
LiveRamp's price-to-sales ratio based on the next 12 months is 4.1x, suggesting that the market is expecting more steady growth, relative to the hottest tech stocks. There are definitely 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.
Wall Street analysts covering the company had a one-year price target of $45.10 per share right before these results (compared to the current share price of $41), implying they saw upside in buying LiveRamp in the short term.
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