More Life Left In Life360

This story features LIFE360 INC. For more info SHARE ANALYSIS: 360

Life360 has doubled in share price since its March earnings result, but brokers believe further re-rating is still on the cards.

-Life360 beats on earnings
-Record quarter for monthly active users
-Further re-rating expected
-US listing pending

By Greg Peel

Life360 ((360)) is a California-based, ASX-listed company that operates a technology platform to locate people, pets, and objects in North America and internationally, plus some more extensive services, via a range of free and pay-for apps.

Using Life360’s technology, one can keep track of the whereabouts of a young child, a dotty grandmother, a wayward dog, and a mobile phone, for example.

The company offers “paying circles” which allow family members to collectively keep track of whomever or whatever they wish to.

When Life360 reported second half earnings at the beginning of March, the share price quickly jumped 50%. Aside from posting beats on revenues and earnings, the company announced a move into advertising (to its non-paying database) that brokers saw as the main highlight.

Since then, the share price has now as good as doubled. Last Friday, the company provided a quarterly update which led to only a muted share price response, given the key metrics had already been pre-reported.

Conservative Guidance

Life360’s quarterly update showed a slight miss on consensus revenue forecasts, but a beat on adjusted earnings. Growth in monthly active users and paying circles were a record in the quarter.

Management noted it is “seeing that higher growth level continuing” with regards to the late quarter rise in monthly active users and paying circles.

Despite the strong result, 2024 guidance was left unchanged, even though management highlighted this year’s result will be more second half-weighted than usual due to the ramp-up in advertising revenue over the year. 

Goldman Sachs continues to see upside to Life360’s 2024 earnings guidance at future results given (1) subscription revenue from March quarter net adds will begin to be recognised through the June quarter; (2) the company is yet to hit its seasonal peak in the September quarter with back-to-school; (3) high-margin advertising revenue is still expected to begin flowing in the second half, as well as seasonal Hardware revenue; and (4) Goldman does not expect a material step-up in the cost base as management focuses on operating leverage.

In other words, notes the broker, Life360’s core subscription business is performing ahead of expectations even before advertising dollars begin to ramp up, creating the possibility for continued guidance and consensus upgrades as the year progresses.

Ord Minnett makes the point that with some 65% of earnings coming in the second half, on the broker’s estimates, any hesitation to upgrade guidance this early in the full year is but understandable.

US Listing

The company also announced a non-binding letter of intent to partner with Hubble Network in the US, which offers similar services, and plans for a US IPO. Details of both nonetheless remain scarce.

Life360 will look to list in the US on the Nasdaq Global Select Market. Any IPO will consist of a primary/secondary issue, with the primary component not to exceed US$100m. The stock will remain listed on the ASX. All other details remain scarce, but on balance, Ord Minnett sees this as a positive.

Goldman Sachs does not expect Life360’s investment in Hubble Network to materially alter the near-term financials or investment case (given an initial investment of only single-digit USD millions). However, in this broker’s view it does provide some longer-term optionality to drive greater returns from the earlier Tile acquisition.

Bell Potter has increased the multiple it applies in its enterprise value-to-revenue valuation to 6.5x from 5.5x given the proposed US listing and potential re-rating of the stock due to higher multiples for comparable companies.

Positive Views

Subscription growth, operating leverage and cash generation are all on track versus expectations, Morgan Stanley notes. The broker feels the market will still seek clarity on the timing and magnitude of the advertising contribution, but retains an Overweight rating and has lifted its target to $17.50 from $16.50.

Key potential catalysts for the stock, suggests Bell Potter, include another strong quarter of paying circle growth in the June quarter (April was another good month), a potential upgrade to 2024 guidance sometime in the second half, and a US listing at some stage in the next 12 months.

Bell Potter has a Buy rating and has lifted its target to $17.75 from $16.25.

Ord Minnett feels it is a mistake to look at the Hubble Network deal in isolation. Life360 is a family safety platform, this broker notes, with new verticals able to be continuously offered to a global network of some 66m users.

For Ord Minnett, “this is the story.”

Ord Minnett has a Buy rating and has lifted its target to $16.68 from $15.20.

As Life360’s profitability scales, Goldman Sachs expects investors to compare the company to larger Australian/US peers, which should be supportive of a continued valuation re-rating, in this broker’s view.

Goldman has a Buy rating and has lifted its target to $16.05 from $14.20.

At the time of writing, Life360 shares are trading at $14.90.

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