Advertising data platform LiveRamp (NYSE:RAMP) reported Q2 FY2024 results exceeding Wall Street analysts' expectations, with revenue up 8.7% year on year to $159.9 million. The company also expects next quarter's revenue to be around $165 million, in line with analysts' estimates. Turning to EPS, LiveRamp made a non-GAAP profit of $0.43 per share, improving from its profit of $0.22 per share in the same quarter last year.

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"We posted strong second quarter results, with both revenue and operating income exceeding our expectations; operating margin was a record high and operating cash flow was positive for a fifth consecutive quarter,” said LiveRamp CEO Scott Howe. “We had our best new logo quarter in two years, including the addition of multiple Fortune 500 customers, demonstrating the traction our Data Collaboration Platform has with marketers looking to more fully leverage their first-party customer data across the digital advertising ecosystem.”

Started in 2011 as a spin-out of RapLeaf, LiveRamp (NYSE:RAMP) is a software-as-a-service provider that helps companies better target their marketing by merging offline and online data about their customers.

Advertising Software

The digital advertising market is large, growing, and becoming more diverse, both in terms of audiences and media. As a result, there is a growing need for software that enables advertisers to use data to automate and optimize ad placements.

Sales Growth

As you can see below, LiveRamp's revenue growth has been mediocre over the last two years, growing from $127.3 million in Q2 FY2022 to $159.9 million this quarter.

LiveRamp's quarterly revenue was only up 8.7% year on year, which might disappoint some shareholders. However, we can see that the company's revenue increased by $5.80 million in Q2, up from $5.44 million in Q1 2024. This gives up hope that growth could be re-accelerating.

Next quarter's guidance suggests that LiveRamp is expecting revenue to grow 4% year on year to $165 million, slowing down from the 12.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 5.5% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such 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 101% in Q2. This means that even if LiveRamp didn't win any new customers over the last 12 months, it would've grown its revenue by 1%.

Significantly up from the last quarter, LiveRamp 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%+.

Key Takeaways from LiveRamp's Q2 Results

With a market capitalization of $1.96 billion, LiveRamp is among smaller companies, but its $524.1 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

Despite a miss on direct subscription customers (a number that decreased year on year), the company beat on all other key line items like revenue, adjusted operating profit, and adjusted EPS. We were also impressed by LiveRamp's strong gross margin improvement this quarter and its increase in net revenue retention. The major positive is that guidance was strong and full year guidance in particular was raised across the board. Zooming out, we think this was great quarter, showing that the company is staying on track. The stock is up 14.1% after reporting and currently trades at $34.2 per share.

So should you invest in LiveRamp right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.