Here’s one thing that could be holding shares back from more gains.
Shares of advertising technology company LiveRamp Holdings (RAMP 8.72%) jumped higher on Thursday after the company reported financial results for its fiscal fourth quarter of 2024. As of 11 a.m. ET today, LiveRamp stock was up almost 11%.
Another good quarter for LiveRamp
Without getting into the nitty gritty, LiveRamp’s platform provides data for advertisers that’s important as digital advertising transitions away from third-party identifiers. In the fourth quarter (which ended in March), the company generated revenue of $172 million, which was ahead of expectations and up an encouraging 16% year over year.
On the bottom line, shareholders had additional reason for excitement. The company had full-year cash from operations of nearly $106 million. For perspective, it had just $34 million in fiscal 2023. That’s a big increase, and it’s part of what’s fueling LiveRamp stock today.
Why has the stock not gone up more in recent years?
LiveRamp is a business that seems to be on the right side of trends in the adtech space. And it’s not surprising to see this high-margin business grow.
That said, there’s a caveat with LiveRamp’s cash flow that I believe is important to an investment thesis today. The cash flow is boosted by its heavy use of stock-based compensation — it paid over $71 million in fiscal 2024 alone, which is unusually high for a small company that’s been around as long as LiveRamp.
The company does buy back stock, but it mostly just offsets stock-based compensation. Therefore, when looking at buybacks, stock-based compensation, and cash flow together, it all just cancels one another out, in a manner of speaking.
RAMP stock based compensation (TTM) data by YCharts; TTM = trailing 12 months.
Put another way, LiveRamp hangs on to cash by paying employees with stock. But this hurts shareholders, so management takes the cash it held on to and buys back shares. Therefore, its cash position isn’t increasing as fast as its cash flow would imply.
I’d like to see stock-based compensation come down for LiveRamp. If it does, the business is well positioned for growth, and shareholders could enjoy better gains.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.