Privacy Regulations And Competition Will Restrict Markets Yet Spark Optimism

Key Takeaways

• Growing data privacy regulations and industry trends toward direct first-party data strategies pose risks to core revenue streams and market expansion.
  
• Strategic product development and partnerships support growth, but higher compliance costs and increased competition threaten margins and pricing power.
  
• Increasing regulation, intensifying competition, industry shifts away from third-party data, customer concentration, and rising costs are constraining growth, profitability, and overall business predictability.

Catalysts

A technology company, operates a data collaboration platform in the United States, Europe, the Asia-Pacific, and internationally.

• Although LiveRamp continues to benefit from the shift toward first-party data and the need for privacy-centric solutions following the decline of third-party cookies, ongoing increases in global data privacy regulations could restrict the amount and type of data clients are able to use, leading to slower growth in revenue derived from identity resolution and onboarding products.
  
• While demand is being fueled by the proliferation of connected devices and the rise of cloud-based data collaboration ecosystems, the company faces the risk that brands and publishers' direct first-party data strategies may reduce the industry's reliance on LiveRamp's core data onboarding services, potentially capping the addressable market and limiting customer acquisition opportunities.
  
• Despite positive momentum from new product rollouts like Cross-Media Intelligence and deeper integrations with CTV and Commerce Media Networks, heightened consumer focus on data privacy-amplified by privacy-enhancing technologies and browser changes-threatens to undermine the datasets that power LiveRamp's solutions, putting downward pressure on sustained revenue growth and future operating leverage.
  
• While international expansion and strategic partnerships lay the groundwork for future topline diversification and margin expansion, heavy compliance and security investments required to address the evolving regulatory landscape could meaningfully erode net margins and increase operating expenses in the medium to long term.
  
• Even as the push into AI-driven advertising and data clean rooms positions LiveRamp for growth as a key infrastructure provider, the possibility of commoditization within the data connectivity space and rising competitive pressure from larger integrated platforms raises long-term concerns about pricing power and the company's ability to maintain above-market earnings growth.

LiveRamp Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on LiveRamp Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming LiveRamp Holdings's revenue will grow by 8.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.7% today to 14.1% in 3 years time.
• The bearish analysts expect earnings to reach $136.2 million (and earnings per share of $2.14) by about August 2028, up from $12.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, down from 136.3x today. This future PE is lower than the current PE for the US Software industry at 38.1x.
• Analysts expect the number of shares outstanding to decline by 1.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

LiveRamp Holdings Future Earnings Per Share Growth

Risks

• Heightened global data privacy regulations and evolving consumer attitudes towards data usage could increasingly restrict LiveRamp's core identity resolution and data collaboration activities, limiting the company's ability to collect, match, or activate data across partners and ultimately impeding future revenue growth.
  
• There is rising competitive pressure from larger, better-resourced technology conglomerates such as Salesforce and Adobe, which are rapidly expanding their integrated data and identity solutions and making major acquisitions, leaving LiveRamp at risk of losing market share, facing pricing pressures, and suffering margin compression over the long term.
  
• The growth of first-party data strategies by brands and publishers, especially as the industry moves away from third-party cookies, could reduce demand for LiveRamp's third-party data onboarding and marketplace services, resulting in lower subscription fee growth and declining net new annual recurring revenue.
  
• Exposure to a concentrated set of large enterprise customers and major platform partnerships means that any contract loss, unfavorable renewal, or platform policy change could lead to revenue volatility and less predictable earnings, as highlighted by the recent churn event with Oracle's exit from ad tech.
  
• Persistent cost pressures, including the high and growing need for regulatory compliance investment, security, platform modernization, and R&D to keep pace with technology and privacy requirements, may continue to offset operating efficiency initiatives and limit future net margin and earnings expansion.

Valuation

• The assumed bearish price target for LiveRamp Holdings is $28.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of LiveRamp Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $53.0, and the most bearish reporting a price target of just $28.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $968.4 million, earnings will come to $136.2 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $26.46, the bearish analyst price target of $28.0 is 5.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.