Small Caps | Oct 05 2022
New broker research reinforces the global opportunity for Life360 to become a dominant brand.
-Brokers confident on the outlook for Life360
-Positives include pricing power and new market rollouts
-The addressable market may support more than one winner
-Two drivers of structural profitability
By Mark Woodruff
Following first half results for Life360 ((360)) during the August reporting season, Bell Potter raised its target price, while Morgan Stanley came away more bullish than consensus.
The company has more than 30m monthly active users and has the potential to leverage this user base to enter new markets and become a dominant brand at the heart of family life.
Bell Potter and Morgan Stanley are both Buy rated (or equivalent) and now Goldman Sachs has joined them by initiating coverage of the founder-led family location and safety service company with a Buy rating and 12-month price target of $7.50.
The average price target of these three brokers is $7.52, which suggests around 50% upside to the latest Life360 share price.
The company’s subscription business aims to protect people, pets and "things". Features of the Life360 mobile app range from communications to driving safety, as well as location sharing.
Life360 operates a “freemium” business model where the app is available to users at no charge. Over the last five years the company has been monetising its user base by providing premium subscription options, as well as recently introducing a membership program.
The app has seven times more downloads than the next closest competitor, reports Goldman Sachs, and is top 10 in terms of app store rankings across Apple and Google. Management at the company claims the app is the 19th most used US iOS app overall.
The Apple-owned Find My/AirTags are the key competitive threats though this broker feels the integration of Tile into the core Life360 App will help close the gap with the Apple user experience. Tile, which was acquired late last year, makes a Bluetooth tracking device for lost items.
In addition, Goldman Sachs expects Life360/Tile to grow within an expanding addressable market capable of supporting more than one winner.
Higher first half operating expenses in FY22 reflected the large investment ahead of the bundled launch of Life360 and Tile.
First half Results
As part of first half results, management upgraded its 2022 core subscription revenue growth guidance to greater than 55% from greater than 50%. Cash at June 30 of US$79m was also better than the US$70m forecast by Bell Potter, and a there’s considered to be no need for a capital raise.
As a result, this broker forecasts positive adjusted net profit in FY24, and raised its target price to $8.25 from $7.50.
Morgan Stanley (target price $6.80) highlighted further positives including 33% growth in US monthly active users (MAU) in the first half, and 65% growth in non-hardware annualised monthly revenue (AMR).
This broker noted evidence during the half of an improving value proposition and latent pricing power from the company’s ability to lift prices by up to 50% on plans to new subscribers.