Life360 (ASX: 360) reported second-quarter results, with revenue growth accelerating to 36% on the prior year, driven by 38% growth in core subscription revenue. Founder Chris Hulls announced his resignation as CEO of the company he founded, with Lauren Antonoff taking over the role.

Why it matters: The company has continued to track ahead of its prior guidance and has decided to upgrade its fiscal 2025 guidance. We have adjusted our near-term forecasts to be in line with the new guidance.

  • We have been impressed by Chris Hulls’ tenure as CEO, reflected in our Exceptional Capital Allocation Rating. Specifically, we have been impressed by Hulls’ unwavering focus on the creation of a family-focused social network and avoiding the temptation to go broader.
  • Hulls will remain an active executive chairman, involved in strategy, product development, and key relationships. We view this as positive for shareholders, as we expect Hulls will be able to spend more time and energy on the most strategically valuable aspects of the business.

The bottom line: We increase our fair value estimate for no-moat Life360 by 5% to $21 following upgraded guidance. At current prices, Life360 screens as materially overvalued. We believe the market is overextrapolating growth in advertising revenue.

  • For the company to grow advertising revenue more than our forecasts, we believe it needs to have valuable data to enable targeted advertising, or valuable digital real estate, neither of which it has.
  • The other revenue segment, which includes advertising, reflects this. Although revenue grew 99% from the prior year, revenue was essentially flat from the prior quarter. Guidance for the full year implies negligible growth for the remainder of the year.

Life360 founder Chris Hulls moves into active Executive Chairman role

We expect Life360 to primarily focus on continued investment in the improvement of user retention within its core Life360 product.

Life360 has achieved impressive user retention, especially in the US on iOS, and we expect this to continue, especially beyond the US and on Android. First-month user retention in the US has reached 70% since 2021 from around 60% during 2018. By comparison, its international first-month retention reached only 45% by 2023 from around 30% during 2018. We believe international markets have a less safety-focused culture compared with the US, which could bring lower retention, but we expect further convergence of product features and offerings to result in more narrowing of the gap.

We also expect continued improvement in retention across all Life360 markets through the development of new features and offerings. We are especially optimistic about Life360’s ability to improve paid-user acquisition and retention through bundled offerings with its Tile hardware, and we expect these trackers to be initially included in a subscription at cost or at a small loss to drive adoption. We also expect Life360 retention to improve through integration of its Jiobit wearables, which provide higher-quality tracking that will benefit from increased pet-humanization and helicopter-parenting trends.

Bulls say

  • Life360 is the clear leader in family-focused networking, with industry-leading customer retention and engagement metrics.
  • Retention is likely to increase in the short term as international markets converge with the US market.
  • Retention rates are forecast to improve in the medium to long term because of continued expansion in features and offerings, especially from the integration of the Tile and Jiobit acquisitions.

Bears say

  • Life360 is currently unprofitable and has not yet proven that its business model can be profitable in the future.
  • Life360 faces formidable potential competitors in the mobile operating system operators and social-network companies.
  • Life360’s business is reliant on continued access to the mobile operating systems iOS and Android and may lose access to core functionalities.

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Terms used in this article

Star Rating:Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.