LiveRamp, the data collaboration platform, reported its first quarter of fiscal year 2025 (calendric second quarter of 2024) earnings on August 7, 2024.
Revenue: Back To Double-Digit Growth. But Is It Sustainable?
LiveRamp employees likely breathed a sigh of relief after this earnings report. After a so-so 2023, where the company only achieved double-digit growth once (barely reaching 10% in CQ4 2023, i.e., even for Christmas), LiveRamp is now back to the solid, in-the-teens growth rates it enjoyed between 2020 and 2022. For the quarter ending June 30, 2024, LiveRamp reported revenue of $176 million, representing a 14% year-over-year increase, surpassing its own guidance by two points. This marks the second consecutive quarter of double-digit revenue growth, following a 16% increase in the first quarter of this year.
But can LiveRamp sustain this rate of expansion? Management seems to be optimistic, if cautiously so, projecting only 10% growth for the full fiscal year. This suggests that executives expect performance to dip somewhat in the coming quarters, even during the holiday season. Are they concerned about the impact of signal loss, a potential recession, a saturated market, or the triopoly squeezing the open Internet? Or is this simply an overabundance of caution?
Historically, LiveRamp has underperformed programmatic advertising growth in the U.S. (see below chart). Faster expansion is the key to LiveRamp’s future.
Profitable, But Profitable Enough for Expansion?
LiveRamp posted a non-GAAP operating income of $27 million, translating to a 15% operating margin, up 2 percentage points from the same quarter last year. That is exactly where profitability should be – many AdTech companies have operating margins around 15% to 20%, which is considered healthy and sustainable.
On a GAAP basis, LiveRamp recorded an operating loss of $5 million, down from an operating income of $2 million a year ago. GAAP numbers are based on standard accounting practices, codified in the Generally Accepted Accounting Principles. But for many tech companies, specifically software companies, GAAP does not accurately reflect a company’s ongoing operational performance because it does not track certain non-recurring or non-cash items. In other words, many companies use non-GAAP numbers to reflect business performance that is not be captured by GAAP.
In LiveRamp’s case, non-GAAP items include certain acquisition related expenses, non-cash stock compensation and restructuring charges. (If you are interested, you can read more about how they use non-GAAP numbers in Appendix A of their earnings press release.)
Profitability could be higher, but like many tech vendors, LiveRamp must balance growth with profitability. Investments in expansion are necessary, but too much sacrifice in profitability could hurt both the company’s bottom line and its stock price. For instance, research and development expenses and sales and marketing costs grew by 28% and 21%, respectively, indicating a sales offensive.
However, there are limits to what LiveRamp can achieve. Despite initiatives to boost non-U.S. business, international revenue has remained stubbornly at just 5% of total revenue for at least five years. Is this a strategic focus on the U.S. market, or are other factors like engineering costs for fighting signal loss, European privacy regulations, and challenging Asian markets holding back international expansion? The company’s focus on expanding its international presence could be a key area of growth, particularly as global demand for data privacy and compliance solutions rises.
Is There More Upside In The Smaller Marketplace Product?
LiveRamp has two product segments. Subscription Revenue includes data collaboration platforms, identity resolution, and data activation solutions, while Marketplace & Other includes revenue from LiveRamp’s data marketplace, where clients buy and sell data sets.
Subscription services are LiveRamp’s major income source, bringing in $135 million last quarter, or 77% of total revenue. However, the Marketplace segment, which generated $41 million, presents significant growth opportunities. As a newer product in a data-hungry market, the Marketplace segment grew by an impressive 28% year-over-year and has averaged around 20% growth annually over the past four years. However, growth rates for this segment have been inconsistent, suggesting room for improvement in both sales and client retention (see chart below).
Stock Market Reaction:
Solid Results, Tough Market
Despite exceeding both its own guidance and analysts’ expectations for revenue growth and profitability, LiveRamp’s stock price dropped by 19% the day after earnings were announced. The decline was likely due to a number of analysts downgrading their ratings or lowering their price targets for the stock. The reasons for this are unclear, but concerns about the company’s future amidst signal loss and tightening privacy regulations may have played a role.
Looking Ahead: Opportunities and Challenges
LiveRamp had two noteworthy announcements during their earnings call. Their ID solutions are now interoperable with Nielsen’s, and their Authenticated Traffic Solution (ATS) is now integrated with Yahoo’s cookie-less ID solution, ConnectID. LiveRamp continues to improve with regard to its products and partnerships.
However, increasing cost pressures, as seen in growing expenses, suggest that maintaining profitability while pursuing aggressive growth strategies will be challenging. On the bright side, LiveRamp’s robust cash reserves—over $310 million—provide a cushion for further expansion, software development, and potential strategic acquisitions.
Conclusion: Solid Going, Solid Future
Despite the challenges, LiveRamp’s strong financial position and strategic focus on innovation position it well for future growth. With robust cash reserves, key partnerships, and expanding product offerings, the company is poised to capitalize on the rising demand for data privacy and collaboration solutions. While obstacles remain, LiveRamp’s commitment to innovation and adaptability should ensure it continues to thrive in the competitive ad tech industry.
About LiveRamp
LiveRamp is a data collaboration platform that helps companies connect, control, and activate data to improve customer experiences and business outcomes, primarily in advertising and marketing. Headquartered in San Francisco, LiveRamp offers services like data onboarding, identity resolution, data activation, and cross-channel measurement. For more information about LiveRamp and its services, visit their website at LiveRamp.com.
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