Small Caps | Aug 03 2020
This story features LIFE360, INC. For more info SHARE ANALYSIS: 360
Life360 has surpassed 27m monthly active users, maintaining a tight grip on costs and providing its first positive quarterly cash flow.
-Strong positive trends despite lockdowns
-Approaches the second half with proof of profitability
-Quantitative update on customer behaviour anticipated in August results
By Eva Brocklehurst
Life360 ((360)) has turned a corner, providing its first positive quarterly cash flow. The company, which provides a family services and location app that can be accessed by a smart phones, has surpassed 27m monthly active users.
Costs were under control in the June quarter and subscriptions were relatively resilient despite the lockdowns. Unsurprisingly, the growth trajectory has moderated because of the pandemic.
Tight cost control is a demonstration, Moelis asserts, of the highly discretionary nature of the company's cost base, as user acquisition expenditure was pulled back to just US$200,000 in the June quarter compared with US$4m in the prior quarter.
Consumer demand for location sharing and safety devices naturally declined during the lockdowns. Still user retention in the US was well above the broker's expectations and is growing. May and June recovered 70% of the losses experienced in April, with positive trends continuing into July.
Life360 now approaches the second half with an improved value proposition for its membership offering and proof of profitability. Moelis, with a Buy rating and $4.05 target, considers the stock offers potential for a re-rating as it improves "paying circle" growth, conversion and pricing.
Underlying revenue growth was 46% in the quarter, while average revenue per paying circle was up 9%. Global users were up 9%, albeit -10% below the March quarter. Allstate lead generation revenue continues at US$500,000/month.
While the next version of the Allstate Insurance partnership has been delayed because of the pandemic, with a focus on membership launch Credit Suisse expects similar levels of monetisation in the second half.
R&D expenditure is still expected to grow in the foreseeable future with the company finding plenty of areas to invest, intent on becoming a one-stop shop and build out international offerings.
The main implication from the update Bell Potter deduces is the company now has scale, with a solid platform and product, and has done most of the hard yards. Product was launched on time and within budget.
There is no debt and growth is expected to resume, although the full market opportunity remains to be established. Bell Potter assesses lower customer growth is offset by meaningful earnings upgrade potential for the next couple of years.
The recent launch of the new membership plan will serve as a potential step-change, Credit Suisse agrees, particularly at a revenue per user level and in terms of conversion, as only 13% of US users are currently covered by a paying circle.
There was no quantitative update as to the early indications of customer behaviour and the broker awaits the August results for further insights, retaining an Outperform rating with a $4.40 target.
The Life360 app is available in more than 160 countries, although the US accounts for over half of all users. The company has three plans which are specific to its paying circles (membership group) and once an upgrade is made to a paid plan all of the circle has the benefit. The partnership with Allstate Insurance provides Life360 users with insights into driving habits and connects with personalised insurance offers.
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