Small Caps | Jan 18 2023
This story features LIFE360 INC. For more info SHARE ANALYSIS: 360
Investor concerns around the impact of price changes implemented by Life360 in late 2022 have proven unwarranted, with trends normalising and the company moving closer to breakeven.
-Last week's market update by Life360 has been well-received by local analysts
-Trends have normalised following price changes implemented in December
-Company now expects to breakeven early in the new year, allowing for positive cash flow and earnings over 2023
By Danielle Austin
Despite concern from investors since its third quarter about the impact price changes would have on churn and subscriber conversion, Life360 ((360)) experienced a strong finish to the year. Following the implementation of price changes for iOS users in December, the company reported monthly active user, subscriber and churn patterns have "normalised".
A restructure has brought forward the company’s expected cash flow breakeven to the second quarter of the running financial year, a quarter earlier than previously expected. The company confirmed it met the lower end of its full year guidance for FY22 (year-end December).
Achieving breakeven sooner than previously anticipated will see Life360 turning cash flow and earnings positive in FY23, while the organisational restructure should additionally derive -US$15m in annual savings.
Preliminary guidance for 2023 suggests revenue growth of 35%. A full-year impact of price increase underpins much of the company’s expected subscription revenue growth, and analysts suggest it offers potential upside.
Analysts Respond Positively
Despite implementing downgrades to pull forecasts in line with company guidance, brokers have largely found Life360’s latest market update to be a net positive.
Goldman Sachs (Buy, target price $7.90) expects the update from the company regarding churn and subscriber normalisation will alleviate investor concern. The broker does note longer-term front book impact is yet to be determined.
The broker anticipates front book impact to improve over the coming year, as price updates are digested by the company’s user base.
The company achieving only the lower end of guidance came as no surprise to Goldman Sachs, which had already predicted as much. The broker anticipates proving the pricing power of its subscription model represents an approaching inflection point for Life360 that would see the company move on from the non-profitable tech label.
Goldman Sachs makes minor downgrades to its earnings per share forecasts, bringing its outlook in line with company guidance, while anticipating positive earnings of over $9.0m in the year ahead.
Bell Potter (Buy, target price $9.00) similarly lowered its revenue forecasts -3.0%, -5.0% and -3.0% through to 2024. This broker anticipates Life360 achieved revenue of US$226m in 2022, and will grow revenue 36% in 2023 to US$306m.
While Bell Potter expects positive earnings of US$8.0m in 2023, an upgrade on its previously anticipated -US$8.0m loss, it increased the expected loss in 2022 to -US$40.0m from -US$39.0m.
Morgan Stanley (Overweight, target price $8.50) equally found Life360’s early full year result to be positive overall. This broker found paying circles resilient given the significant price increases implemented, but does highlight potential for a fourth quarter destocking to present a tailwind in 2023.
Life360’s initial guidance for 2023 is ahead of Morgan Stanley’s forecasts across the board, with the broker predicting 33% revenue growth compared to the company’s 35%.
All target prices sit significantly above the share price, even following a positive response post last week's market update.
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