Treasure Chest | Sep 07 2020
This story features LIFE360, INC. For more info SHARE ANALYSIS: 360
Life360 is in a strong position to capitalise on its opportunities, revealing a strong growth outlook even in the midst of the pandemic.
-Growth trajectory has moderated
-But user paying circle memberships are robust
-And the smartphone app now has scale
By Eva Brocklehurst
Smart phone location app provider Life360 ((360)) continues to gain ground as the number of paying circles, and revenue generated, have improved even in the wake of the coronavirus outbreak. The company has provided 2020 guidance for revenue of US$79-82m and, as Bell Potter asserts, it is in a strong position to capitalise on opportunities, with over US$50m in cash and no credit risk.
The promising initial results from the new membership offering represent an important commercial milestone and Moelis agrees operating leverage is starting to play out, reiterating a Buy rating with a $4.75 target. The first four months post the launch of the new membership offering have meant more than 40,000 paying circles have been added or “upsold” and the remainder grandfathered into Gold and Silver tiers.
New US paying circle signings at an average fee of US$115 are up 33% on the previous Driver Protect plan and up 62% compared with the average across the legacy US paying base of US$71. The upgrades signal to Bell Potter that over 20% of total subscribers by the end of this year will be on the higher-value plans.
Moelis considers this growing membership support will be a key driver of growth over the next few years. Management expects new membership subscribers to make up 20-25% of the US base by the end of 2020.
The company has been cautious about the uncertainties in operating conditions and a resumption of new marketing expenditure outside of paid user acquisitions will depend on improvements in the operating environment.
First half revenue of US$37.8m, up 54%, reflected a 42% uplift indirect revenue to US$27.3m. Along with an operating loss of -$7.1m this was substantially better than expected, and Moelis believes it demonstrates Life360's ability to operate at a positive earnings level if user acquisition expenditure is pared back.
Global users were up 9% in the first half, albeit -10% below the March quarter. Credit Suisse is not surprised the growth trajectory has moderated since the coronavirus outbreak, given core features of the product are location and driving information and these are less relevant in an environment of reduced mobility. Still, early signs of a possible step change from the launch of the membership offer are encouraging and the broker retains an Outperform rating and $4.80 target.
Bell Potter agrees the business is resilient, and believes Life360 will be able to expand its features further when it owns the platform and access to users. The broker assesses the hard yards have been done and there is scale, so now it's a matter of how quickly the business can grow.
The company plans to be the "go to" platform whereby users can access an app that brings families together, offering a range of safety features. The largest geographies outside of the US include India, Brazil and the UK, and Australia is growing fast.
Bell Potter assesses a sales/enterprise value multiple of 5-10x within a year is realistic and Life360 is currently trading on 3.2x FY21. As a result of the higher-than-expected revenue, the broker upgrades estimates for 2020 by 15.8%, 2021 by 12.5% and 20 2 by 14.9%. As a result, and after increasing estimates for retention rates, the broker upgrades the target to $7.00 from $5.20, retaining a Buy rating.
See also, Life360 On The Profitability Path on August 3, 2020.
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