3 Reasons to Sell RAMP and 1 Stock to Buy Instead

LiveRamp has been treading water for the past six months, recording a small loss of 3.6% while holding steady at $26.07. The stock also fell short of the S&P 500’s 6.5% gain during that period.

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.

Why Is LiveRamp Not Exciting?

We don't have much confidence in LiveRamp. Here are three reasons why RAMP doesn't excite us 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 $527 million in Q4, and over the last four quarters, its year-on-year growth averaged 6.8%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments.

2. Customer Churn Hurts Long-Term Outlook

One of the best parts about the software-as-a-service business model (and a reason why they trade at high valuation multiples) is that customers typically spend more on a company’s products and services over time.

LiveRamp’s net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 104% in Q4. This means LiveRamp would’ve grown its revenue by 4.2% even if it didn’t win any new customers over the last 12 months.

Despite falling over the last year, LiveRamp still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

3. 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 13.1% annualized growth for the past five years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Final Judgment

LiveRamp’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at 1.9× forward price-to-sales (or $26.07 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at the most dominant software business in the world.

Stocks We Would Buy Instead of LiveRamp

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