What happened
Shares of middleware software company LiveRamp (RAMP -2.50%) plummeted on Tuesday after the company shared results from the second quarter of its fiscal 2021. Q2 revenue surpassed expectations, but management guided for slowing growth next quarter, which is likely the culprit for today's losses. As of 11:45 a.m. EST, LiveRamp stock was down 19%.
So what
For Q2, LiveRamp's revenue was up 16% year over year to $105 million, exceeding expectations of roughly $100 million. Much of the company's revenue is recurring, with $86 million in Q2 subscription revenue, representing a more robust 19% increase from last year. Finally, annual recurring revenue (an annualized projection based on the last month of the quarter) was up 18% to $318 million.
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All of those different revenue metrics looked good, but LiveRamp's guidance failed to impress. Management is guiding for $113 million in revenue next quarter, which is just an 11% year-over-year increase. Furthermore, it's not providing guidance past next quarter, citing macroeconomic uncertainty. This was enough to make the stock drop.
Now what
LiveRamp's revenue growth should be kept in context. Many of its corporate customers are pushing back some spending, which affects LiveRamp's revenue. As a result, LiveRamp has cut back on its sales and marketing expenses the last two quarters. The bright side is that annual recurring-revenue growth is outpacing the cost of acquiring that revenue, which is a good sign for profitability in the long term.
Additionally, LiveRamp's integration with key demand-side (DSP) and supply-side advertising (SSP) platforms remains strong. Specifically, DSP specialist The Trade Desk recently announced its new platform called Unified ID 2.0, which is supposed to be a long-term replacement for the third-party browser cookie. LiveRamp is a key partner with The Trade Desk in the project, a strong suggestion that this small technology company isn't about to get left behind.
