LiveRamp Holdings, Inc. (RAMP) Earnings Call Transcript & Summary

All right. Good afternoon, everybody, and thank you for joining us. So my name is Stan Zlotsky from the Morgan Stanley software research team, the emphasis there is on software research, not Internet. And the -- thank you for joining us. This afternoon we're hosting the team from LiveRamp. We have Warren Jenson, CFO; Anneka Gupta, Head of Product; and Lauren Dillard, Head of IR and Communications. So thank you so much for everybody for joining us today. So before we get started, please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures or at the registration desk.

So I think a good place for us to start, right, is you guys are hosting your user conference right down the road in San Francisco here this week. Maybe start off with some -- what are some points that you'd like to highlight as the key ones coming out of the conference?

Well, why don't I go ahead and jump in, Stan, and of course, Anneka or Lauren, jump in and follow-up as well. I was mentioning to some of the folks that we chatted with this morning. It's pretty interesting for me, so like my #1 takeaway, I reverted back to a point earlier in my career, I happen to have been the CFO of Amazon.com when the stock went to $7. I wish I kept a lot more of that stock today than I had, but what was really interesting then was everybody was talking about Amazon going bankrupt. And the company wasn't going to survive, but what we did would go on and be interviewed like on CNBC or print or wherever it was, and I always ask the reporter, do you use the service? And the second thing -- they usually said, yes, and we say, what are you think of it? They go, I love it. And we go, okay, well there you go. So bringing back to the conference, I think for those of you who had the chance to attend, you saw an incredibly vibrant ecosystem. We -- our attendance was 3,300 registrations, up about 20% from last year, with people, brands, publishers, advertisers or brands, publishers and ecosystem participants, all in attendance. And uniformly, I'd say 3 things. They're really excited about our products and the work we do together with them today. Of course, we can always be better, but people like LiveRamp. Number two, and we can come to the authenticated traffic solution. The ecosystem and brands and publishers are looking for LiveRamp to solve this problem for them. It's our role of being Switzerland and our role with neutrality. And the third thing is they're incredibly excited about our new products. The demand signals for our LiveRamp Safe Haven are incredible, and we think is the next-generation of some pretty interesting opportunities for LiveRamp.

Perfect. So that's a good place to start, and Anneka, I don't know if you...

No, [ we can move on ].

Okay, great. So the thing that for me personally that really stood out was the fact that you had 3,300 attendees, up 20% year-on-year despite everything else that's going on in the world. And I think that -- obviously, it's a peripheral step, but I think it's really impressive and really showcases the focus of customers on LiveRamp. But we were at the conference, we were running around talking to people, and probably the 2 topics that are coming up most often amongst customers are cookies and privacy, which is, frankly, not surprisingly. When we start off the discussion, right, maybe let's focus on cookies first, right? When you look at how LiveRamp is used today, and all the concerns that investors have about, hey, what's going to happen with cookies, third-party cookies, when you look at how LiveRamp is used today, which parts of the identity graph are really impacted by cookies?

Yes. So if you look at the way that customers, and I'm going to talk about brands, advertisers, we also interact with publishers and platforms, et cetera, as customers, when you look at the value that we provide to brand, a lot of that is unchanged in a cookieless world. So today, brands send us their CRM data, their transaction data, their loyalty card data, and we help connect that data and those audiences into a multitude of different platforms, where they can then execute personalized ad targeting or measurement. And today, like that -- somewhat we're connected into about 550 platforms. A big chunk of those platforms are what we call premium publishers. So these are companies where we have a direct integration that's based on PII into those platforms. So this includes Facebook and Google, but also Pinterest and Snapchat and Spotify and Twitter and all of these walled gardens that have created their own ad stacks and have authenticated users that are logging into their platforms and engaging there. So our value into those platforms and connecting brand data into those platforms for advertising and measurement is unchanged. Similarly, we work with a bunch of TV platforms, and this includes traditional TV like cable providers, like Comcast and DISH, but also streaming providers like Hulu and OTT and CTV providers like Samsung TVs and Roku. And then all of the integrations that we've built with them, with all those different providers are also based on a direct integration, where we have a PII-based match that we're doing into those platforms. And there too our value in a cookieless world is unchanged. Where the changes occur are really on the open Internet and connecting data into the variety of DSPs and SSPs that connect out into the wide world of publishers outside of the walled gardens or TV ecosystem. And there, what we've seen over the past couple of years is a big shift to big publishers, like New York Times and Washington Post and Condé Nast, putting more and more of their content behind registration walls and subscription walls. And what that enables is that LiveRamp can then embed our identity into those publishers and provide an alternative ID to the third-party cookie and arguably a better ID to the third-party cookie into the advertising ecosystem. The way that works is, let's say, you log into the New York Times. Now New York Times has your email address, LiveRamp can then translate that e-mail address into our anonymous ID or IdentityLink. We can then store that IdentityLink, either within a first-party cookie or server side. And then when New York Times wants to go show an ad to that user, we look up the IdentityLink on that user, pass it downstream to the SSP or DSP. These are the ad tech platform. And the SSPs and DSPs can use this ID to run their auction. And on the back end, we're connecting advertiser data as well to those IDs, and therefore, enabling an ecosystem to operate outside of third-party cookies.

And I would just add, I think one of the reasons we are able to do that so effectively is that our graph, Stan, is rooted in PII or known identity, which I would say, is a core differentiator. But it's also what makes our ID so much more persistent and durable than, say, a cookie or other digital device ID.

And I think that's a really important distinction, right? So when you look at the different ways that LiveRamp is used, do you have any ballpark example, any ballpark percentages on how much of your usage is across these types of PII and other types of use cases versus just the open cookie web?

Yes. About half of our top 20 destinations are either PII-based or already IdentityLink-enabled. And the other half of those that aren't, we're actively in conversations for making those IDL-enabled destinations. And we feel really confident based on the response that we're getting from the entire advertising ecosystem that we have a path forward here. On Sunday, as part of our user conference, as a pre-conference, we did an addressability summit, where we had 30 of the top publishers and advertisers in the world coming together with us to brainstorm solutions and talk about how ATS can enable them to have an enduring addressability in the open ecosystem. And we're seeing pulls from like all of these really big names, and we have the ad tech partners there as well. And so what we're seeing over the past 2 months since Google made their announcement on getting rid of third-party cookies in Chrome is that the whole ecosystem is really coalescing around us and really wants us to help solve this problem.

Got it. And one of the interesting unintended, I think, consequences of third-party cookies is the potential for this further fragmentation of the web, where if you're a New York Times or a Newsweek, you can certainly put up a registration wall and make people register to get access to content, but then you're also going to -- just like these premium publishers are able to do it, every Joe Shmoe publisher is going to start putting up registration walls. And in that type of situation, what role does LiveRamp take on in this highly fragmented web?

I think LiveRamp's value proposition from day 1 has been simplifying complexity on behalf of advertisers. So in a world where there are many different publishers that are creating essentially their own mini-walled gardens, similar to what exists today across our existing premium publishers, the role that LiveRamp plays is really in stitching this all together and providing a stable ID and stable pipe for data to flow in a privacy-safe way.

I would simply add in there too maybe think of -- we're doing what our customers are asking us to do, and what our customers want is they want a neutral solution. They want ubiquity. They want the same solution. If you're a large CPG brand, they want ATS to not only be rolled out in North America. They want it to be rolled out globally because they don't -- they just want one solution. Everybody wants a balanced competitive ecosystem. And along with the simplicity that Anneka mentioned, we're helping to do exactly that.

And Warren, that's a great segue, right, into your ATS offering, right. Maybe for investors in the room and those on the webcast, can you just explain what ATS is? Because that is a service, Authenticated Traffic Solution, you guys have been working on it for quite some time, right? So it's not like all of a sudden on January 14 and whenever Google announced that they're going to be getting rid of third-party cookies, the world woke up and said, "Oh, my gosh, what's going to happen?" You released this product back in May of 2019, which is -- which means that the development of it started years potentially in advance. Walk us through the ATS solution and how its role in the industry really evolves over time.

So maybe, Anneka, why don't you take the first part of that, maybe I can give a little bit of a scorecard on how we're thinking about things.

Yes. So the crux of ATS is really getting all participants in the ecosystem operating off of IdentityLink as an alternative ID to third-party cookies. So if you look at what we started 3 years ago, 3 years ago, we launched the Advertising ID Consortium. And the purpose of the consortium was to bring together SSPs and DSPs within the ad tech ecosystem and work with them to create people-based identity and create a solution that wasn't reliant on third-party cookies. So for the past couple of years, we've been working with them to embed IdentityLink as an ID that can be bid off of within an SSP or DSP. So that has been a very critical component to making this whole ecosystem work. And that takes a lot of effort on behalf of the SSPs and DSPs. They have to go and re-architect their systems to leverage a different kind of ID. It takes a long time from a relationship and contracting standpoint and then also from an implementation standpoint. And that's something that's years in the making. And then as you mentioned, in May of last year, we started talking about Authenticated Traffic Solution for publishers. And really getting ATS embedded with publishers such that publishers could store an IdentityLink within the first-party cookie or server side so that publishers didn't have to rely on third-party cookies. And that's an effort that's really started to take off, especially now that we have a time line around when third-party cookies are going away. So it really takes the -- all participants in the ecosystem coalescing around that, and we already had a very strong adoption of IdentityLink with our brands, because IdentityLink is the foundation for all the services that we provide to our brands today. So if you want to talk about the scorecard for those constituents that we've made tremendous progress.

Yes. So we think about our progress really in 3 buckets: think about brands, think about infrastructure and then think about publishers. And it's pretty interesting today. So let's, first of all, talk about brands. We have over 700 clients, some 450 of the largest brands. Of our direct clients today, so this doesn't include brand advertisers that we might serve through one of the marketing clouds or one of our other partners. But direct clients, we serve over 60% of the top 50 U.S. advertisers. Now why is that so important is all those U.S. advertisers today have IdentityLink deeply embedded into their workflows. So the next logical step for them is really the adoption of ATS. So that puts us in a great position, and it also puts our brands in a great position to be able to solve this problem as addressability across the breadth of the Internet is absolutely critical for them. Next, infrastructure. We have what, more than 4 of the 5 top SSPs. We're now up to 33 of the DSPs being integrated. Go to the publisher community, as Anneka already mentioned, and I'll repeat it, more than half of our top destinations are already either direct PII integrations or already on ATS. And the motivation for the rest of the publishers is extremely strong because all those brand customers on the other side are telling them, we want you to be ATS-enabled, and they're looking at facing severe revenue drop-offs if they don't have addressability. Referencing something that Anneka said finally about our publisher conference, it was so fascinating, because we had some of the top German publishers actually making the trip amidst COVID-19 to San Francisco. And you know why they were here is they faced Firefox turning off third-party cookies a few months back, and those same publishers saw their revenue drop by 1/3, basically, overnight. So they understand the implications of not having a solution in place, and we're some of the first big publishers to reach out immediately when we launched the Authenticated Traffic Solution.

And I think that's a really important element that in -- at least in my conversations with investors, I think a lot of investors are really missing is the human element of all this. The human element -- and not necessarily just a human element, but the corporate execution element in the need and the ability -- the need to be able to do addressable advertising not in a creepy way, but just looking at you need to do it in order to drive revenue, and what happens if that goes away? And keeping that in mind, is it fair to think about ATS as almost like a plan B for the industry depending on what Google comes out with as the next framework for -- the replacement framework for third-party cookies? ATS, worst-case scenario, is always going to be there in brands and publishers and SSPs, DSPs, everybody will be able to standardize on it.

I'd kind of look at -- Anneka, you can jump in here, but as we were talking, Stan, I would tell you, ATS is actually becoming the plan A and the cookie the plan B. And the reason why is, it's a better mousetrap. It's a direct linkage. So actually, our addressable reach goes up with ATS, not down because you avoid the inefficiency of the multiple cookie syncs as a cookie travels through the breadth of the ecosystem. It means for the brands, higher quality inventory. It means for the publisher, higher quality inventory. And then as Anneka mentioned early on, the long tail publisher that doesn't have authenticated traffic today, stay tuned on that front because we'll be introducing tools that we hope will enable publishers of any size and scale to participate as well. So we're actually pretty excited. Our customers are too because fundamentally, the solution is a better one than the one we have today. That said, cookies are the world we live in today. We're going to continue to support it as long as that's what our customers want to do. But we, with our brands and publishers, are moving aggressively to ATS in a world without cookies.

And Stan, you mentioned that kind of the consumer element here. I think it's also worth noting, in addition to just efficiency gains, it's also a more consumer-friendly framework, something that is reliant on kind of consent in that implicit value exchange, which we think potentially future-proof the ecosystem against additional regulation for kind of consumer privacy changes.

And Lauren, that is actually a really good point that you bring up. Maybe walk through the privacy aspect of what ATS introduces, both for brands, publishers as well as consumers.

Yes. I think when we're talking about ATS, we're talking about helping publishers that are building registration walls monetize their inventory after a log in. The fact that a user is already going to be registering with a publisher and logging into their site, they are -- that indicates that they have a relationship with that publisher that's meaningful to them. Because a registration wall is a barrier to entry. And then going through the registration process, they're given the notice and choice about how their data is going to be used and their relationship with that publisher. So the fact that ATS relies on authentication means that, inherently, there is the piece where consumer notice and choice is built into what we're doing. In addition, if you think about the way that consumers have to manage their preferences today, in order to truly opt-out or change your preferences, you have to go and interact with 40 different cookie domains that are all different, and you have to find these companies that are -- that have a tag on a web page and actually go set your preferences individually. With ATS and IdentityLink, you can set your preferences once and have them propagate throughout the ecosystem.

That's -- I think that's a really important point in as much as the entire ad tech industry is really being scrutinized by the government today in terms of privacy and data sharing. I think, once again, your ATS is a good solution for just the entire industry to behave better. So specifically on ATS, I realize that you guys are not going to be looking to monetize it directly, but there's obviously a very important indirect monetization in this as much as, look, this is going to continue to -- this is going to become the backbone for addressable advertising for all of these brands and for publishers to be able to monetize their content. So is it fair to think about, hey, yes, it's not monetized directly, but this will be the backbone for how LiveRamp will continue to grow as a business?

I feel when you were talking, Stan, that the interesting thing is, ATS, like with the Safe Haven product that we launched this week, is opening up all kinds of new and interesting revenue streams for us. So for example, you'll see us open up a version of Custom Audiences for publishers so that they can have access to a lot of -- have access to data and have a whole new set of revenue streams for them. So it's not simply about monetization of their own addressable inventory, but what can they safely do in a very privacy-friendly way with their partners, like the CPG partners or their retail partners, for example. So at the end of the day, we think it's just going to open up all kinds of new additional TAMs. Plus, I think the beauty of it, we're already seeing it from our customers. They're innovating on top of our solutions. So we'd expect to see new and interesting ecosystem applications come into play as well.

That's great. And the Safe Haven, Warren, you just mentioned, you guys announced it yesterday. But essentially, what Safe Haven is, from my understanding, is it's an ability to provide parties to exchange their first-party data in a compliant and controlled way. So essentially, it becomes a second-party data exchange, right? What's the opportunity for Safe Haven? And in this world of third-party cookies, third-party data, really is just starting to become diminished, what's the importance of Safe Haven second-party type of solutions?

I'll start off, and Anneka, I'm sure you're going to weigh in here as well. The vision for the Safe Haven actually started several years ago, and our launch customer was, I think, as many of you know, Carrefour in France. And it was really born out of a desire to say, okay, how can Carrefour be more competitive? And if you think of the data gathering prowess of Amazon, they in effect have created -- they network their entire ecosystem, all the way from, it's not just your website visit, but it's the third-party seller of data, it's your browsing behavior, it's all kinds of different things. And so as we sat down with the leadership of Carrefour, we basically said, how do you go about creating and network your sphere of influence? Well, one of the easiest things to do is not just to think about your loyalty card programs and the different silos inside of a retailer of that size, but you think of the CPG partnerships. And so we basically said, okay, well, let's create this permission-based privacy-first data sharing environment that takes advantage of very natural consumer-friendly data sharing relationships, like a retailer would have with CPG. So now what we're seeing is incredible demand not only in retail, but from other industries too like you can imagine with travel or financial services, and also tremendous desire from the CPG brands because you've got, I don't know, tens, if not hundreds of billions of dollars of trade dollars that flows through retail. If you think of the top 100 CPG brands, I have no clue how big the advertising dollars are that they spend. And what do they all want? They all want ROI-based measurement that's driving more in-store transactions, whether those be online or in the physical store. So it ended up creating just, at a perfect time, a very consumer-friendly way that ad companies can work together in a privacy-first type of environment to better serve their customers and at the same time, drive better ROI on their investment and, in many cases, incremental revenue streams.

Perfect. And I'm going to throw out one question, and then we'll open up the floor to the audience. Warren, maybe for you on CCPA, right? CCPA is -- just went into effect, and it really -- it's another solution for privacy, right? When you consider CCPA and what kind of impact it could have on your marketplace business, right, how did you think about that, both for fiscal '20 and then into fiscal '21?

Essentially, what we did was we knew that every -- let me back up for a second. The first thing that we did at LiveRamp, which has been our hallmark, is we say, we don't look to work around privacy standards, we look to embrace them. So if there's anything that we have worked very, very hard and we'll continue to do is to be a privacy-first solution. It's what our brands want, it's what consumers want, it's what everybody wants. So we say, we don't fight privacy, we embrace privacy. So the second thing that we did was we went through and just looked at all of our data suppliers and then we have been and are going through a constant program of ensuring that they are compliant. And whether if you're not compliant with CCPA, you're not going to have a place in data store. So on the basis of that analysis, we try to evaluate our prospects. Now what's interestingly is what we're seeing and we'll continue to -- we believe we'll continue to see is actually a flight to quality. Nobody wants low-quality -- to use low- quality data that's not appropriately permissioned. So people and brands are increasingly turning to LiveRamp as a trusted place at our marketplace to access data. And then Anneka, would you?

Yes. I mean I think we've always had a pretty high bar for the data partners that we work with, and CCPA enabled us to have even further discussions with them about how they're sourcing their data and how they're ensuring compliance. Later this year, we announced at our user conference that we're planning to release more information into our data marketplace that's surfacing how our data providers are sourcing their data, and we'll provide like an accreditation layer such that our -- the buyers of that data have more confidence in the quality and what should emerge from that, as Warren said, is applied to quality. And the quality data providers will really rise to the top. We don't believe that brands are going to stop buying data. Data is -- they don't have -- no brand has all the information that they want to know about their customers, and they want to use for personalization and measurement. So we continue to believe that there's going to be a robust ecosystem for data.

And here's another plug for the Safe Haven, that's the highest quality form of data, right. Somebody else's first-party data.

Yes, that makes a lot of sense. Let's see if there are any quick questions from the audience. There's one right there.

Thanks for all the color and clearing things up. It's super helpful. Maybe just 2 questions. First one, ATS. It's a free product for publishers, so it seems really like a great solution. Are there any harbingers or roadblocks that prevents you from getting that other 50% onto the platform in the next kind of 2 years, if that's what Google thinks? And then separately, as you think about kind of your conversations with brands now, are you seeing any elongation sales cycles? Or the fact that now customers are going to have to log into websites, are they discouraged away from using LiveRamp a little bit more or want to go more to the walled gardens versus kind of putting more on your platform, because that could obviously derail the 25%, mid-20s kind of subscription growth rates?

So on the ATS adoption with publishers, I think we're still in the early days of getting the rest of that 50% on ATS. I would say that we are not going at this alone. So the biggest barrier is actually just awareness that our solution exists. And the way that we're addressing that is that we've actually signed up a lot of the SSPs to resell ATS. So they're going to their entire publisher network and lighting up ATS and they've integrated in such a way that it's very, very easy for a publisher to implement. We also have our own direct publisher team that's going out and building awareness and working with publishers directly to integrate, but we're very optimistic about getting that adoption because we're seeing really good early signs of adoption amongst SSPs through the retailer program and then also the conversations that we're directly having with publishers. On the brand side, what -- we spent a lot of time with our customers over the past 2 days, and what we've heard loud and clear from them is that brands and advertisers, they want choice. They don't want to be locked into Facebook and Google. They want to be able to have -- to control the way that they do their measurements. They want to be able to reach consumers where they are. And consumers spend about 50% of their time within walled gardens, but they spend another 50% of their time on the open Internet. And so that is a valuable place to reach consumers. And as long as it continues to be a valuable place to reach consumers, brands are going to want to light up their data and be able to personalize experiences within the open Internet as well.

I'd simply add, and it's a little bit tangential to the ATS question, is every brand wants neutrality, and they want the Safe Haven between them and the walled gardens. It was interesting, I guess, a couple of weeks back, we were with a large, just well-known U.S. retailer, and who happens to be implementing our -- the Safe Haven. And the line was something like this, it's, "We're totally okay with our data being inside of walled garden X, but we want it inside the LiveRamp room." And that's the position of neutrality as we kind of put the clean in clean room. So that's another factor is brands want balance, and they want neutrality, and they're really not interested in sharing their data.

Well, guys, I think this is a good place for us to stop. Thank you so much for joining us this afternoon, super interesting discussion.

Thank you. Thanks for having us.

Thanks, everybody.