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LiveRamp (NYSE:RAMP) Surprises With Q2 Sales, Stock Jumps 18.4%


Full Report / November 08, 2022
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Advertising data platform LiveRamp (NYSE:RAMP) reported Q2 FY2023 results beating Wall St's expectations, with revenue up 15.5% year on year to $147 million. Guidance for next quarter's revenue was $158 million at the midpoint, 3.19% above the average of analyst estimates. LiveRamp made a GAAP loss of $30.4 million, down on its loss of $6.43 million, in the same quarter last year.

LiveRamp (RAMP) Q2 FY2023 Highlights:

  • Revenue: $147 million vs analyst estimates of $143.3 million (2.6% beat)
  • EPS (non-GAAP): $0.22 vs analyst estimates of $0.09 ($0.13 beat)
  • Revenue guidance for Q3 2023 is $158 million at the midpoint, above analyst estimates of $153.1 million
  • The company reconfirmed revenue guidance for the full year, at $597.5 million at the midpoint
  • Free cash flow of $18.7 million, up from negative free cash flow of $35.1 million in previous quarter
  • Net Revenue Retention Rate: 108%, down from 113% previous quarter
  • Customers: 920, up from 910 in previous quarter
  • Gross Margin (GAAP): 71.2%, down from 72.4% 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 mediocre over the last two years, growing from quarterly revenue of $104.6 million in Q2 FY2021, to $147 million.

LiveRamp Total Revenue

This quarter, LiveRamp's quarterly revenue was once again up 15.5% year on year. We can see that the company increased revenue by $4.85 million quarter on quarter. That's a solid improvement on the $518 thousand increase in Q1 2023, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates LiveRamp is expecting revenue to grow 12.3% year on year to $158 million, slowing down from the 17.4% 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 10.1% over the next twelve months.

Customer Growth

You can see below that LiveRamp reported 920 customers at the end of the quarter, an increase of 10 on last quarter. That is a little better customer growth than last quarter but while it is still a bit below what we have typically seen over the last year, it is suggesting that the company may be reinvigorating growth.

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. Despite the recent drop this is still a decent retention rate and it shows us that LiveRamp's customers stick around and 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 71.2% in Q2.

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. 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 $18.7 million in Q2, up 86.5% year on year.

LiveRamp Free Cash Flow

LiveRamp has generated $64.8 million in free cash flow over the last twelve months, a solid 11.3% 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 Q2 Results

With a market capitalization of $1.07 billion LiveRamp is among smaller companies, but its more than $485.6 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.

We were very impressed by LiveRamp’s very strong acceleration in customer growth this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the deterioration in revenue retention rate and revenue growth is slower these days. Overall, this quarter's results still seemed pretty positive and shareholders can feel optimistic. The company is up 18.4% on the results and currently trades at $18.48 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. We cheer for everyone who is making the lives of others easier through technology, but in case of LiveRamp we will be cheering from the sidelines. Its revenue growth has been mediocre, and analysts expect growth rates to deteriorate from there. And while its strong free cash flow generation gives it re-investment options, unfortunately gross margins aren't as good as other tech businesses we look at.

LiveRamp's price to sales ratio based on the next twelve months is 1.7x, 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.

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