Life360: Building Tomorrow’s Dominant Brand

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

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.

Two material drivers of Life360’s structural profitability

Over time, Goldman Sachs believes the In-App Payment (IAP) fees charged by Apple should fall (currently 20-25% of subscription revenue), and there is potential for an easing of anti-steering provisions.

Currently, these provisions ban developers from directing users to payments (for example) outside of Apple’s ecosystem.

A reduction in fees by Apple in line with Google from FY23 onwards could provide 10% upside to subscription gross profit, according to the broker, as well as 8% upside to group gross profit and around 400bps upside to gross profit margins in FY24.

The outlook

Life360’s profitability can improve substantially over time, according to Goldman Sachs, given the company’s strong underlying unit economics and scalability. The company is expected to expand its product suite and lift penetration rates outside the US.

The company is well funded until it reaches cash flow positive, with the cash balance reaching a low of $52m in FY23, explains the analyst.

There is also potential to enter new markets. By way of example, the company launched a subscription-based service called Driver Protect which disrupted the market and helped enable monetisation of its user base. The services uses your smartphone to automatically detect if you are in a serious accident and immediately contacts emergency services and family members.

Other potential markets, according to Bell Potter, include insurance, item & pet tracking, senior monitoring, home security and/or identity theft.

There is a risk of a slowdown in consumer spending brought on by the macroeconomic backdrop, though Goldman Sachs notes family safety is a more defensive product category.

Morgan Stanley expects a seasonally strong back to school trading update later this month, that will include bundling of Tile hardware for the first time.

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