Executive Summary / Key Takeaways

• Platform Modernization Inflection: LiveRamp is completing a multi-year platform refresh that temporarily compresses gross margins but will unlock permanent cost efficiencies and enable AI capabilities, positioning the company for accelerated growth and margin expansion beyond FY2026.

• Usage-Based Pricing as Growth Catalyst: A strategic shift to usage-based pricing, piloted with 40 customers including the world's largest quick-serve restaurant (MCD), is receiving "overwhelmingly positive" feedback and could fundamentally improve land-and-expand motions, potentially adding 2-3 percentage points to revenue growth once fully rolled out in FY2027.

• Cross-Media Intelligence Addresses Industry Crisis: The newly launched Cross-Media Intelligence solution targets the $379 billion enterprise AI measurement market, already securing commitments from the largest social media platform (META), a leading CPG manufacturer, and other marquee customers, creating a new high-margin revenue stream.

• Rule of 40 Trajectory Intact: Despite near-term macro headwinds and platform migration costs, LiveRamp remains on track to achieve Rule of 40 by FY2028 (10-15% revenue growth, 25-30% operating margin), having delivered Rule of 31 in FY2025 with clear line of sight to 22% operating margins in FY2026.

• Valuation Disconnect: Trading at 12.9x free cash flow and 2.0x enterprise value to revenue, LiveRamp offers a compelling risk/reward profile for a company with 70%+ gross margins, 13% revenue growth, and a defensible network moat connecting over 500 partners, though investors must monitor the January 2025 class action lawsuit and macro-sensitive variable revenue streams.

Setting the Scene: The Data Collaboration Imperative

LiveRamp Holdings, incorporated in 2018 but tracing its roots to Acxiom's 2011 spin-off, has evolved from a data onboarding utility into the central nervous system of the AI-driven advertising ecosystem. The company operates a neutral data collaboration platform that enables over 350 brand customers—including 20 of the 25 largest U.S. advertisers—and more than 200 ad tech platforms to unify customer data while preserving privacy. This positioning provides a key advantage because the advertising industry faces a structural measurement crisis: third-party cookies are vanishing, privacy regulations are tightening, and traditional multi-touch attribution is failing in a fragmented CTV and mobile landscape.

The industry structure reveals why LiveRamp's neutrality is a strategic asset. Unlike Oracle (ORCL), Salesforce (CRM), and Adobe (ADBE), which bundle data capabilities into broader enterprise suites, LiveRamp functions as Switzerland—connecting competing ecosystems without favor. The company's 500+ partner network includes all six major agency holding companies, 10 of the 11 largest streaming platforms, and over 30 commerce media networks. This scale creates a classic network effect: each new partner increases the platform's value for existing participants, making it progressively harder for competitors to replicate. For investors, this moat translates into pricing power and sticky revenue, evidenced by the company's ability to maintain 70%+ gross margins while growing revenue double digits.

LiveRamp's business model generates revenue through two primary streams. Subscription fees, representing roughly 75% of revenue, are priced based on data volume and connection points, providing a stable foundation of recurring revenue. The Marketplace and Other segment, comprising the remaining 25%, includes revenue-sharing from data transactions and usage-based fees, which are more sensitive to advertising spend but offer higher incremental margins. This mix balances stability with growth optionality—70% of revenue is contracted and fixed, while 30% provides upside leverage in strong ad markets.

Technology, Products, and Strategic Differentiation

The Platform Modernization Edge

LiveRamp is completing a backend migration and two platform refreshes that represent the most significant infrastructure upgrade since the 2018 Acxiom divestiture. The migration is temporarily depressing gross margins by 2-3 percentage points due to running dual platforms and elevated cloud hosting costs. However, management confirms the migration remains on track for Q4 FY2026 completion, after which cost optimization should accelerate. A temporary margin headwind will give way to permanent cost savings and improved processing speed, directly supporting the Rule of 40 trajectory.

The new platform architecture enables capabilities that were previously impossible. Cross-Media Intelligence, launched at the February 2025 RampUp conference, allows marketers to measure campaigns across walled gardens, CTV, and offline channels using clean room technology. This addresses a pain point that has plagued CMOs for years: the inability to get a unified view of media performance. Early adoption from the largest social media platform, a leading CPG manufacturer, and the largest consumer software company (MSFT) validates the product-market fit. For investors, this represents a new high-margin revenue stream that could contribute 1-2 percentage points to revenue growth in FY2027.

AI as Enabler, Not Competitor

LiveRamp's October 2025 debut of agentic AI solutions and an AI-powered audience segment builder positions the company as an "AI enabler" rather than an AI model provider. This distinction allows LiveRamp to capture value from the AI boom without competing directly with Google (GOOGL), Microsoft, or OpenAI. The company's role is to connect fragmented first- and second-party data to power AI systems while ensuring data owners maintain control through clean rooms. With 83 AI application providers in the partnership pipeline—including Perplexity and Dappier—LiveRamp is building the data infrastructure layer for the emerging AI advertising stack.

The AI-powered audience segment builder, which creates multisource segments using natural language prompts, reduces campaign setup time from days to hours. This operational efficiency translates directly to customer ROI, which LiveRamp quantified in a commissioned study showing 313% ROI with payback under six months. AI integration increases platform stickiness and justifies premium pricing, supporting both revenue growth and net retention rates.

Usage-Based Pricing Transformation

The usage-based pricing model, piloted from July 2025 through March 2026 with up to 40 customers, represents a fundamental shift in go-to-market strategy. Unlike the traditional volume-based model, the new approach uses fungible tokens across platform capabilities, lowering entry costs for new customers while enabling existing ones to experiment with additional features. Early feedback has been "overwhelmingly positive," and management expects it to drive incremental revenue by improving both "land" and "expand" motions.

The model directly addresses two historical constraints: long sales cycles and limited upsell flexibility. LiveRamp's revenue aligns with customer success—when clients grow their data usage, LiveRamp benefits automatically. While no upside is baked into FY2026 guidance, a full rollout in early FY2027 could add meaningful acceleration, particularly in the mid-market where entry costs previously deterred adoption.

Financial Performance & Segment Dynamics

Revenue Quality and Growth Drivers

LiveRamp's 13% revenue growth in FY2025 and 7.7% growth in Q2 FY2026 mask underlying strength in strategic areas. Subscription revenue grew 4.7% in Q2, which management explicitly called a "low watermark" based on bookings from a year ago. This represents a trough, not a trend. Fixed subscription revenue actually grew 6%, while usage was slightly down due to macro softness. More importantly, the company added $14 million in net new ARR in Q2—the largest organic increase in seven quarters—with the million-dollar-plus customer cohort growing 5% sequentially to 132.

Marketplace and Other revenue surged 18% in Q2, accelerating 5 points sequentially. This acceleration demonstrates that LiveRamp's CTV and commerce media investments are bearing fruit. Data Marketplace growth, which represents 75% of this segment, was driven by new CTV integrations and a stable ad spending environment. CTV data purchases increased nearly 50% in FY2025, and several large CTV partnerships are scheduled to go live in Q3/Q4 FY2026. For investors, this validates the strategy of expanding beyond traditional retail media into airlines, casinos, automotive, and real estate.

Margin Expansion Despite Headwinds

Gross margin compression from 72.4% to 70.2% in Q2 FY2026 is entirely attributable to platform migration costs, not pricing pressure or competitive degradation. The $8.8 million increase in cloud infrastructure costs was partially offset by a $1 million decrease in intangible amortization, showing the operational leverage inherent in the model. Once the migration completes in Q4 FY2026, management expects gross margins to recover toward the mid-70s, providing 3-4 percentage points of margin expansion in FY2027.

Operating leverage is already visible below the gross margin line. Q2 FY2026 GAAP operating income more than doubled, expanding margins by 7 points, driven by a disciplined 23% reduction in stock-based compensation. LiveRamp can invest in growth while expanding margins—a prerequisite for achieving Rule of 40. The company's cost structure is highly fixed, meaning incremental revenue drops through at high rates once platform migration costs abate.

Cash Flow and Capital Allocation

LiveRamp generated a record $153 million in free cash flow in FY2025 and $57 million in Q2 FY2026 alone, representing a 12.9x price-to-free-cash-flow multiple. This is notable for a company growing revenue double digits with 70%+ gross margins. The balance sheet remains pristine with $377 million in cash and short-term investments and zero debt as of Q2 FY2026. This financial strength provides strategic optionality: the company has $176.6 million remaining on its $1.3 billion share repurchase authorization through December 2026, and management has demonstrated willingness to deploy cash opportunistically, repurchasing $80 million in stock year-to-date.

LiveRamp can self-fund its platform migration, AI investments, and pricing transformation without diluting shareholders or taking on debt. This contrasts sharply with competitors like Twilio (TWLO), which carries higher debt loads and lower margins, or Salesforce, which must balance growth investments with margin pressure.

Outlook, Management Guidance, and Execution Risk

The Rule of 40 Path

Management's guidance for FY2026—revenue growth of 8-10% and 22% non-GAAP operating margin—implies Rule of 31 performance, building on FY2025's Rule of 31 achievement. The company remains confident in reaching Rule of 40 by FY2028, targeting 10-15% revenue growth and 25-30% operating margin. Margin expansion will accelerate as revenue growth stabilizes in the low-teens range.

The key assumption underpinning this outlook is that platform migration costs will dissipate after Q4 FY2026, while revenue growth reaccelerates from usage-based pricing and Cross-Media Intelligence adoption. Management's cost discipline is evident in the 23% reduction in stock-based compensation and ongoing offshoring initiatives in India, which provide structural margin tailwinds independent of revenue growth.

Macro Sensitivity and Guidance Range

The wider-than-normal revenue guidance range for FY2026 ($804-818 million) reflects explicit macro assumptions. The high end assumes a stable economy, while the low end incorporates "a pretty major deterioration in the macro in the back half." About 30% of revenue—Data Marketplace and subscription usage—is variable and sensitive to advertising activity. Management believes the low end is "fairly derisked" given it implies a large step-down from current levels, but investors should monitor Q3 and Q4 performance for early warning signs of macro stress.

Execution risks center on three areas: platform migration completion, usage-based pricing rollout, and Cross-Media Intelligence adoption. The migration is on track, the pricing pilot shows positive signals, and Cross-Media has secured marquee customers. However, any slip in timing or customer acceptance could delay the Rule of 40 timeline.

Risks and Asymmetries

Legal and Regulatory Exposure

The purported class action lawsuit filed in January 2025 alleging violations of California privacy laws and the Federal Wiretap Act represents a material contingent liability. While LiveRamp maintains insurance and has not accrued a loss contingency, management acknowledges that an adverse outcome could materially affect financial condition. The $2.7 million increase in professional services costs in Q2 FY2026 related to litigation expenses demonstrates the immediate financial impact. Investors should monitor case developments, as a settlement or judgment could range from immaterial to tens of millions depending on class certification and statutory damages.

Macro and Customer Concentration

The company's exposure to advertising cyclicality creates downside asymmetry in a recession. The guidance low end assumes macro deterioration impacts the 30% variable revenue stream, while fixed subscription revenue provides a floor. Additionally, the top 20 destinations—including Meta, Roku (ROKU), LinkedIn, and Disney+ (DIS)—represent meaningful concentration risk. While management notes these platforms are "simply not impacted by open web shifts," any pullback in ad spend from these giants would directly impact Marketplace revenue.

Competitive Pressure

Large enterprise software providers are intensifying their data collaboration offerings. Salesforce's $8 billion Informatica acquisition and Adobe's integrated Experience Platform demonstrate incumbent commitment. However, LiveRamp's neutral positioning remains a differentiator. As CEO Scott Howe noted, "clients are always nervous about concentrating their technology spend or their data with folks who directly control their media." This suggests LiveRamp's agnostic stance is a competitive advantage, but investors must watch for bundling strategies that could lock out independent platforms.

Platform Migration Execution

While the migration is on track, running dual platforms through Q4 FY2026 creates operational complexity and cost drag. Any delay beyond Q4 would push margin recovery into FY2027, potentially jeopardizing the Rule of 40 timeline. The risk is moderate but real, as platform migrations often encounter unforeseen integration challenges.

Valuation Context

At $29.45 per share, LiveRamp trades at 12.9x trailing free cash flow and 2.0x enterprise value to revenue—reasonable multiples for a company with 70% gross margins, 13% revenue growth, and a clear path to 25%+ operating margins. The price-to-sales ratio of 2.48x sits well below larger competitors like Salesforce (10.5x) and Adobe (6.3x), reflecting LiveRamp's smaller scale but also suggesting potential re-rating as the Rule of 40 trajectory becomes more visible.

The company's balance sheet strength—$377 million in cash, zero debt, and a current ratio of 2.73—provides downside protection and strategic flexibility. The 1.17 beta indicates moderate market sensitivity, appropriate for a company with 70% recurring revenue but macro-exposed variable streams. With $176.6 million in remaining buyback authorization, management can provide a valuation floor while investing in growth.

For investors, the key valuation question is whether LiveRamp deserves a premium multiple as it approaches Rule of 40. The 12.9x free cash flow multiple appears conservative relative to the 13% revenue growth and 22% operating margin guidance for FY2026. If the company executes on usage-based pricing and Cross-Media Intelligence, revenue growth could reaccelerate to the low-teens while margins expand toward 25%, justifying a higher multiple as the Rule of 40 target comes into view.

Conclusion

LiveRamp has engineered a quiet transformation from a data onboarding utility into the essential infrastructure for AI-powered advertising collaboration. The company's 500+ partner network, neutral positioning, and platform modernization create a durable moat that competitors cannot easily replicate. While near-term gross margin pressure and macro uncertainty create headline risk, the underlying business demonstrates strong fundamentals: 70%+ gross margins, accelerating Marketplace growth, and a clear path to Rule of 40 by FY2028.

The investment thesis hinges on three execution milestones: completing the platform migration in Q4 FY2026, rolling out usage-based pricing to drive incremental revenue, and scaling Cross-Media Intelligence to capture the enterprise AI measurement market. Success on these fronts would unlock margin expansion and revenue reacceleration, while any slip could delay the Rule of 40 timeline.

At 12.9x free cash flow with a pristine balance sheet and $176 million in buyback firepower, LiveRamp offers an attractive risk/reward profile for investors willing to look through temporary migration costs and macro noise. The stock prices in modest expectations, leaving room for upside as the AI enablement strategy and pricing transformation bear fruit. The key variables to monitor are Q3/Q4 platform migration progress, usage-based pricing adoption rates, and any developments in the class action lawsuit—each of which could materially alter the path to Rule of 40 and the corresponding valuation re-rating.