Cloud-based data connectivity platform LiveRamp Holdings (RAMP -0.34%) has been rallying in the last year as initial effects of the pandemic ease. The stock is up nearly 80% over the last 12-month stretch, boosted as the company's partners rapidly migrate their marketing campaigns to a digital format.
This isn't the highest-growth Software as a Service (SaaS) stock out there, but it looks pretty affordable considering its outlook for the year ahead. Here are three reasons why.
1. LiveRamp is ready for iOS 14 updates
LiveRamp will run into some headwinds in 2021, notably from Apple's (AAPL -1.22%) elimination of IDFA (on-device app tracking, known as "cookies") coming this spring. Application publishers and advertisers have decried the move as it will seriously disrupt their ability to find an audience and make money.
Image source: Getty Images.
The good news is LiveRamp is ready for the changes. It will lose some revenue itself as it sunsets some old cookie-based services it manages for publishers, but the company expects to remain in growth mode regardless. Key to its success is its Authenticated Traffic Solution (ATS), a cookie-less data platform in which businesses and their marketers can share and exchange data -- all the while maintaining consumer privacy and transparency. ATS has already been adopted by some notable names in the marketing universe (it reported having 325 publishers worldwide at the end of its last quarter, up from 215 three months prior), including an integration with ad management automation platform The Trade Desk (TTD -4.34%).
In a recent blog post, Travis Clinger, LiveRamp's senior vice president of addressability and ecosystem, said, "App publishers who rely heavily on the App Store have unknowingly built their revenue model on a sandcastle (the IDFA), which is about to become unstable and unsustainable." LiveRamp has a solution that addresses mobile consumer privacy issues and helps companies make more efficient use of digital data. It's a win-win, and LiveRamp could be a big beneficiary over the long term.
2. LiveRamp has an easy bar to clear in the next few quarters
As a digital data management company utilized by marketers, LiveRamp was deeply impacted early on by COVID-19. When the economy went on lockdown, marketing campaigns came to a screeching halt. Nevertheless, the company's revenue is still up 18% from a year ago through the first nine months of its 2021 fiscal year (the nine months ended Dec. 31, 2020). And during its fiscal 2021 fourth quarter (corresponding with the first quarter of calendar year 2021), LiveRamp management said to expect a 10% year-over-year increase in revenue to $116 million. Not bad for a year dominated by a pandemic.
Things get really interesting beyond that, though. Management's initial outlook for fiscal 2022 (the 12 months that will begin in April of this year, and in which initial effects of COVID-19 will begin to be lapped on a year-over-year basis) is calling for a 10% to 15% increase in revenue. Bear in mind this includes LiveRamp's decision to begin closing down its cookie-based business, a decision that will negatively impact revenue by up to $30 million in fiscal year 2022 -- or roughly 7% of the total revenue outlook.
Still, given the disruption LiveRamp will face as it closes down its cookie-based data business, it's clearly picking up momentum in ATS and offering a better alternative to its partners. This bodes well for the business's prospects over the long term as internet privacy gets updated to conform with consumer wishes.
3. LiveRamp is a profitable growth company
Building on its success in the last year and the $663 million in cash and equivalents it had on the books at the end of 2020, LiveRamp announced it was making a small acquisition: DataFleets, a cloud-based data platform that allows information to be securely shared without the need to move it to a new location. Details of the deal were not disclosed other than DataFleets will have an immaterial impact on LiveRamp's Q4 results.
It's a tiny acquisition, but nonetheless illustrates the position of strength LiveRamp is working from right now. It has no debt on the books, and the company generated positive free cash flow of $14 million during the last quarter (good for a free cash flow profit margin of nearly 12% based on revenue of $120 million in the fiscal third quarter). For a company prioritizing growth and gearing up for changes at Apple, that's respectable.
Granted, free cash flow is negligible over the last trailing-12-month period, so valuing LiveRamp on this metric doesn't help much. The stock trades for 11 times trailing-12-month sales. It's common these days for companies growing revenue north of 20% to trade for well over 20 times sales -- even if they aren't turning a profit yet. For a cloud computing stock growing by a double-digit percentage rate and with much to gain in the years ahead from big tech tightening up on consumer privacy, I say LiveRamp is thus a pretty good deal. I plan on buying more after the recent quarterly update.
