Rising Privacy Laws Will Constrain Margins And Market Relevance

Key Takeaways

• Growing regulatory and privacy pressures limit data access, increasing compliance costs and threatening long-term product adoption, margins, and revenue growth.
  
• Heavy dependence on large clients and rising competition from dominant platforms create churn risks and margin pressure, while R&D spending may outpace revenue gains.
  
• Ongoing product adoption, margin expansion, strong enterprise partnerships, and privacy-driven demand position LiveRamp for sustainable earnings growth and market differentiation.

Catalysts

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

• Ongoing regulatory tightening and the evolution of privacy laws globally threaten to constrain LiveRamp's future growth by increasing compliance burdens and limiting how much consumer data can be lawfully collected, stored, and shared. This presents a structural headwind for adoption and pricing of LiveRamp's data connectivity products, which would likely weigh on both top-line revenue growth and net margin expansion over the long term.
  
• The persistent rise of consumer privacy technologies-including widespread use of ad blockers and the proliferation of privacy-centric browser settings-reduces the volume and utility of addressable digital data available to clients, potentially undermining the effectiveness and perceived value of LiveRamp's solutions, which could drive higher customer churn and pressure recurring revenues.
  
• Increased reliance on a concentrated set of large enterprise customers for subscription revenue heightens LiveRamp's exposure to contract renegotiation and churn risk; any downturn or loss in these accounts could translate to abrupt and sizable revenue declines, impacting not just annual revenue but also the company's ability to consistently expand its operating margin.
  
• The continuous need for substantial investments in research and development and platform modernization-to keep up with both regulatory changes and technological shifts like AI-powered analytics-may ultimately outpace incremental growth in sales, leading to sustained upward pressure on operating expenses and limiting net income or inhibiting cash flow improvements in the medium term.
  
• The rapid consolidation of the digital marketing and ad tech ecosystem, combined with mounting competition from large walled-garden platforms such as Google and Meta that exercise increasing control over first-party data, poses a direct existential threat to LiveRamp's value proposition; this could erode industry relevance, force down pricing, and squeeze both gross margins and overall earnings power in coming years.

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 9.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -0.3% today to 14.5% in 3 years time.
• The bearish analysts expect earnings to reach $140.6 million (and earnings per share of $2.22) by about July 2028, up from $-2.5 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 15.3x on those 2028 earnings, up from -867.3x today. This future PE is lower than the current PE for the US Software industry at 42.7x.
• Analysts expect the number of shares outstanding to decline by 2.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

LiveRamp Holdings Future Earnings Per Share Growth

Risks

• The ongoing expansion and adoption of LiveRamp's Clean Room and Cross-Media Intelligence solutions, especially as only 25% of current customers are using Clean Room products and those customers deliver four times the annual recurring revenue of non-adopters, could provide significant upside to both revenue and earnings as adoption increases over the coming years.
  
• The company's track record of margin expansion-including six consecutive years of operating margin increases, a jump to 18% in FY25, and guidance for 25-30% by FY28-suggests structural improvements in profitability that could drive long-term net margin and earnings growth.
  
• Rising demand for unified, privacy-centric data collaboration and measurement solutions, magnified by new privacy regulations and the industry shift away from cookies, positions LiveRamp to capture an expanding addressable market, supporting sustained top-line growth.
  
• The company's expanding ecosystem of large enterprise clients, multiyear renewals (including 20 multimillion-dollar contracts in Q4), and the growing density and utility of the Data Collaboration Network enhance revenue visibility and support robust recurring revenues and customer retention.
  
• Continued development of strategic partnerships (with cloud leaders, streaming platforms, and major brands), coupled with investments into AI integration and product usability, further differentiates LiveRamp's offerings and could fuel above-market revenue growth and higher long-term free cash flows.

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 $50.0, 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 $970.8 million, earnings will come to $140.6 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 7.9%.
• Given the current share price of $32.91, the bearish analyst price target of $28.0 is 17.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.