Small Caps | May 23 2023
Brokers remain enthusiastic on the outlook for Life360 following first quarter results.
-Life360's first quarter results show cost control and subscriber growth
-Strong execution of price increases
-Brokers remain confident on the outlook
-Potential for guidance upgrade later in the year
By Mark Woodruff
Last week’s first quarter results for global family safety service company Life360 ((360)) exceeded brokers’ expectations for both subscription growth and cost control.
Overweight-rated Morgan Stanley suggests these drivers are more important than less predictable hardware sales.
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 basic app is available to users at no charge. Goldman Sachs believes the company’s valuation is attractive relative to offshore fremium app service peers, when the growth profile is taken into account.
Over the last five years the company has been monetising its user base by providing premium subscription options, as well as introducing a membership program.
In the first quarter, global monthly users increased by 5% quarter-on-quarter to 50.8m. While there was an operating cash outflow of -US$9.2m, Bell Potter had expected this outcome, and management reiterated operating cash flow will be positive from the second quarter onwards.
The first quarter is typically the company’s softest for monthly active users (MAU)/subscriber growth, points out Goldman Sachs, yet US paying circle net additions rose to 38,000 versus the broker’s forecast for 30,000 in the first half, after conversion/churn stabilised.
Paying circles increased by 73,000 quarter-on-quarter to 1.6m, which also exceeded Bell Potter’s estimate for a rise of 35,000. In addition, average revenue per paying circle (ARPPC) of US$121 beat the broker’s US$116 forecast.
Even after assuming a second half ramp-up in marketing spend, Goldmans Sachs expects cost control will result in upside to management’s reiterated FY23 earnings guidance of US$5-10m.
Analysts consider Life360 is executing strongly on price increases while growing subscriber volumes with less user-acquisition spending.
Price increases
In the US, the ARPPC for the quarter was US$140 compared to US$138 in January, as the Android price rise was rolled out in April. This metric is on track to meet Morgan Stanley’s FY23 target of US$149.70.
Price increases of around 50% are being implemented across the entire US monthly paying user base. Back-book Android price increases (in line with iOS pricing) will result in a relatively muted second quarter for net additions, according to company management. Goldman Sachs is forecasting additions of 20,000.
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