Thesis
LiveRamp Holdings, Inc. (NYSE:RAMP) has positioned itself to be in a good position to leverage the growing requirement for secure first-party data collaboration, and to ensure addressable digital advertising in the face of third-party signal loss. LiveRamp is seen to have a well-managed operational plan and good profit growth that align well with the high likelihood of market growth and hence the good performance of the company.
Introduction
LiveRamp Holdings, Inc. operates as a premier data collaboration program, which allows firms to develop and use data in a secure way to change the overall customer experience and generate opportunities for effective business growth. The products offered by the company are the hub in the digital advertising ecosystem that would be possible only through data-driven marketing. I see that LiveRamp’s technology innovation and cooperation with reputable brands are key elements that confirm its role as an essential party in the transition from third-party to first-party tactics.
Financial Performance
Quarter Ended |
Mar 2023 |
Jun 2023 |
Sep 2023 |
Dec 2023 |
Mar 2024 |
Revenues |
148.6 |
154.1 |
159.9 |
173.9 |
171.9 |
Cost Of Revenues |
43.5 |
45.6 |
41.2 |
44.9 |
47.7 |
Gross Profit |
105.2 |
108.5 |
118.7 |
128.9 |
124.1 |
Selling General & Admin Expenses |
81.3 |
71.5 |
70.1 |
73.4 |
88.8 |
Operating Income |
-28.4 |
2.4 |
14.8 |
16.5 |
-8.7 |
Net Income |
-31.4 |
-1.6 |
4.9 |
14.0 |
-5.4 |
Gross Margin |
70.75% |
70.39% |
74.22% |
74.16% |
72.23% |
Operating Margin |
-19.13% |
1.55% |
9.25% |
9.48% |
-5.04% |
Profit Margin |
-21.1% |
-1.03% |
3.04% |
8.04% |
-3.13% |
Source: Seeking Alpha. Retrieved on 07-07-2024. Financials in millions USD.
Last year, LiveRamp had remarkable financial statements. First off, it had a significant rise in revenue, from $148.6 million in March 2023 to $171.9 million in March 2024. This improvement is because the sales force has become more productive and the digital advertising market has grown much more than the initial data suggested there could be. Second, the company grew its profit, but the operating income fluctuated. It saw the lowest point at -$8.7 million in March 2024 after peaking at $16.5 million in December 2023. I see that this up-and-down is related to higher performance-based compensation and the purchase of Habu, which generated more revenue and higher costs at the same time (Q1 2024 earnings call).
To put it more specifically, LiveRamp’s gross margin has pretty much stayed at the same level, being on average around 72-74% throughout the year, reflecting efficient cost management despite fluctuating costs of revenue. The company’s operating margin grew by 2023 second quarter, though by the end of the financial year, it had a setback due to higher SG&A, which showed the company’s struggle in keeping up its profitability. The profit margin went through a similar phase; it was good for a while in December 2023, then it went back to the negative side, marking -3.13% in March 2024, indicating ongoing efforts to balance growth with profitability (Q1 2024 earnings call).
Opportunities
LiveRamp is planning to further develop its data collaboration platform and partner ecosystem as part of its strategic objectives. I see that a major opportunity in this context will be the integration and scaling of Habu’s Clean Room technology, where the company has already exhibited favorable customer feedback and a growing sales pipeline. During the process of integration, we are expecting the demand for LiveRamp’s solutions to grow given the current shift in the industry towards first-party data, and this uptick should therefore contribute to a larger amount of the company’s top line and profitability.
LiveRamp also has a promising possibility, which is a partnership with Google’s DSP, Display & Video 360, besides the PAIR project. Designed to enable advertisers and publishers to securely align their first-party data for personal advertising, a major capability as the history of third-party cookies is coming to an end. The success of early implementation by PAIR that, among other things, utilized the significant improvement of conversion and match rates meant that LiveRamp was now able to join the street at the important moment of making authenticated addressability solutions. This movement permits the company to attract new logo opportunities and at the same time retargets the existing customers who are already in the system.
Challenges
In the last few years, LiveRamp has been dealing with some challenges. One of the most recent challenges’ outcomes is not yet known because Google has delayed the launch of a change in third-party cookies to early 2025. This delay gets in the way of LiveRamp’s PAIR implementation schedule and consequently leads to short-term uncertainty and potential customer advertising strategy interruptions. The process of preparation for the switch is ongoing for the company, but the industry is quite inert, and there is also a need to educate the customers.
Moreover, companies are already aware of the rigorous competitive environment; there is a challenge in the continuance of the need to upgrade the products and customer loyalty. The growth of the company should be achieved through the innovation of its products and the adoption of a customer-first approach. The corporation is asked to demonstrate excellence in the provision of customer care and the latest in data. In addition to technological advancements, the company should have the capacity to succeed in sales and manage the major technological changes, which are inherent to technology in digital advertising production, such as the change from big top-tier customers to numerous small customers.
Valuation
Gross Margin |
P/S ratio TTM |
P/E Ratio TTM |
Growth revenue |
Growth EPS |
Revenue growth forward (analysts estimate) |
Earnings growth forward (analysts estimate) |
|
LiveRamp Holdings, Inc. |
72.79% |
3.19 |
211.4 |
10.57% |
-108.02% |
9.66% |
28.77% |
Sector |
48.96% |
3.01 |
30.55 |
3.34% |
2.16% |
6.66% |
7.32% |
Source: Seeking Alpha. Retrieved on 07-07-2024.
LiveRamp’s valuation metrics reveal its growth potential in comparison to the sector median. I see that the company’s gross margin is 72.79%, substantially higher than the sector median of 48.96%, which proves effective cost management and strong profitability. Overall, it seems to be the case, LiveRamp’s P/E ratio of 211.4 is quite above the sector’s 30.55, which signifies high market expectations for future growth. However, the P/S ratio is relatively close to the sector median, LiveRamp’s 3.19 versus 3.01. This fact implies that LiveRamp’s sales volume is evaluated by the market as a sectoral norm, but there are more demanding growth expectations on the earnings side in the future.
To fairly appraise LiveRamp’s price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio, assuming the revenue growth and profitability trends remain constant, the stated P/E ratio of approximately 100 and the P/S ratio of approximately 3.5 give a correct estimate. To reach the P/E ratio of 100 and P/S ratio of 3.5, the adjustments are made based on the real potential gains with the new services and the strategic partnerships, and the operational risks that could hinder the company’s profitability. I see that with these numbers in mind, investing in LiveRamp is more advantageous and secure given its inherent growth prospects and associated risks in the digital advertising sector.
Conclusion
I am optimistic. Strategic campaigns, which are well planned and executed by LiveRamp, and good financial performance predict the future growth of the company. I see that despite issues such as third-party cookie deprecation delays and competitive pressures, the company comes up with new ideas and holds a powerful position in the market that enable it to adapt to industry trends. LiveRamp’s long-term prospects remain sound due to the solid data collaboration platform and the new partnerships it has formed.
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