Cloud-based data connection platform LiveRamp Holdings (NYSE: RAMP) have been gathered in the last year as the first effects of the pandemic. The stock has risen almost 80% over the last 12-month stretch, boosted as the company’s partners rapidly migrate their marketing campaigns to a digital format.
This is not the SaaS stock (SaaS) that has the biggest growth out there, but it looks pretty affordable given its outlook for the coming year. Here are three reasons why.
LiveRamp is ready for iOS 14 updates
LiveRamp will encounter some headwinds in 2021, especially from Apple‘s (NASDAQ: AAPL) elimination of IDFA (app tracking on the device, known as “cookies”) is coming this spring. Application publishers and advertisers have rejected this move as it will seriously disrupt their ability to find an audience and make money.
The good news is that LiveRamp is ready for the changes. It even loses quite a bit of revenue as it sunsets some old cookie-based services it manages for publishers, but the company expects to remain in a state of growth regardless. The key to success is its Authenticated Traffic Solution (ATS), a cookie-less data platform where companies and their marketers can share and exchange data – while maintaining consumer privacy and transparency. ATS has already been adopted by some notable names in the marketing universe (it reported that it had 325 publishers worldwide at the end of its last quarter, up from 215 three months earlier), including an integration with the ad management automation platform Trade Desk (NASDAQ: TTD).
In a recent blog post, Travis Clinger, LiveRamp’s senior vice president of addressability and ecosystem, said “App publishers who are heavily dependent on the App Store have unknowingly built their revenue model on a sandcastle (IDFA) that is becoming unstable and unsustainable. “LiveRamp has a solution that addresses consumer privacy issues and helps companies make more efficient use of digital data. It’s a win-win, and LiveRamp can be a great receiver in the long run.
LiveRamp has an easy bar to clear for the next few quarters
As a digital data management company used by marketers, LiveRamp was early influenced by COVID-19. As the economy continued to shut down, marketing campaigns stopped. Nevertheless, the company’s revenue is still increasing by 18% from a year ago through the first nine months of the financial year 2021 (the nine months ending 31 December 2020). And during the fiscal 2021 fourth quarter (corresponding to the first quarter of the calendar year 2021), LiveRamp management said they expected a 10% year-over-year increase in revenue to $ 116 million. Not bad for a year dominated by a pandemic.
Things are getting really interesting beyond that though. Management’s initial outlook for fiscal year 2022 (the 12 months beginning in April this year and the first effects of COVID-19 starting to be patched on a year-over-year basis) requires a 10% to 15% increase in revenue . Keep in mind that this includes LiveRamp’s decision to start closing its cookie-based business, a decision that will have a negative impact on revenue of up to $ 30 million in fiscal year 2022 – or approx. 7% of the total revenue outlook.
Given the disruption LiveRamp will face when it closes its cookie-based data store, it’s clearly increasing momentum in ATS and offering a better alternative to its partners. This bodes well for the business’s long-term prospects, as privacy on the Internet is updated to be in line with consumer preferences.
3. LiveRamp is a profitable growth company
Based on its success over the past year and the $ 663 million in cash and equivalents it had on the books at the end of 2020, LiveRamp announced that they were making a small acquisition: DataFleets, a cloud-based data platform that enables to ensure information is securely shared without the need to move it to a new location. Details of the deal were not disclosed except DataFleets will have a material impact on LiveRamp’s Q4 results.
It’s a small acquisition, but nonetheless illustrates the strength LiveRamp is working from right now. It has no debt on the books and the company generated positive free cash flow $ 14 million in the last quarter (good for a free cash flow surplus of almost 12% based on a turnover of $ 120 million in the fiscal third quarter). For a company that prioritizes growth and prepares for change at Apple, it’s respectable.
Granted, free cash flow is negligible over the last 12-month period, so valuing LiveRamp on this measurement does not help much. The stock is trading 11 times after 12 months of sale. It is common these days for companies that grow revenue north of 20% to trade for well over 20 times sales – even if they do not yet make a profit. For one cloud computing warehouse growing by a double-digit percentage and with much to be gained in the coming years from big tech tightening consumer privacy, I say LiveRamp is thus a pretty good deal. I plan to buy more after the latest quarterly update.
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