Shareholders of LiveRamp would probably like to forget the past six months even happened. The stock dropped 21.5% and now trades at $26.62. This may have investors wondering how to approach the situation.
Is there a buying opportunity in LiveRamp, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is LiveRamp Not Exciting?
Even with the cheaper entry price, we don't have much confidence in LiveRamp. Here are three reasons why there are better opportunities than RAMP and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, LiveRamp grew its sales at a 11.5% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the software sector, which enjoys a number of secular tailwinds. 
2. 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 $502 million in Q2, and over the last four quarters, its year-on-year growth averaged 8.9%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments. 
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 7.8%, a deceleration versus This projection is underwhelming and implies its products and services will face some demand challenges.
Final Judgment
LiveRamp’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 2.1× forward price-to-sales (or $26.62 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. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of LiveRamp
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