LiveRamp (RAMP): Buy, Sell, or Hold Post Q3 Earnings?

Over the last six months, LiveRamp’s shares have sunk to $29.22, producing a disappointing 7.9% loss - a stark contrast to the S&P 500’s 13.1% gain. This may have investors wondering how to approach the situation.

Is now the time to buy LiveRamp, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.

Why Is LiveRamp Not Exciting?

Even though the stock has become cheaper, we're swiping left on LiveRamp for now. Here are three reasons you should be careful with RAMP and a stock we'd rather own.

1. Weak ARR Points to Soft Demand

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

LiveRamp’s ARR came in at $516 million in Q3, and over the last four quarters, its year-on-year growth averaged 7.4%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments.

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect LiveRamp’s revenue to rise by 9%, a slight deceleration versus its 13.6% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will face some demand challenges.

3. Operating Margin Rising, Profits Up

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Analyzing the trend in its profitability, LiveRamp’s operating margin rose by 3.6 percentage points over the last two years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 4.1%.

Final Judgment

LiveRamp’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 2.3× forward price-to-sales (or $29.22 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.

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