Life360 (ASX: 360) fell more than 10% as it announced third-quarter fiscal 2026 revenue growth of 40% at 20% adjusted EBITDA margins.

Why it matters: The result signified an acceleration in the core business, as temporary technical issues were lapped. The advertising segment is not living up to prior lofty market expectations, which we disagreed with.

  • Growth in monthly active users accelerated to 17%, from 16% the prior quarter, and a multiyear trend of declining growth. Life360 has over 100 million MAUs, and we think it can eventually reach hundreds of millions as international markets converge with the US.
  • Guidance for full-year advertising revenue was downgraded by 7% on slower integration of the acquired Nativo business. Our forecasts were already around this range as we didn’t believe the company’s data or assets were particularly valuable to advertisers.

The bottom line: We maintain our $25.50 fair value estimate for no-moat Life360. Shares screen as undervalued, as the market has suffered a long period of disappointment from the advertising business not living up to market expectations.

  • Life360 does not have particularly valuable advertising data or assets. Although user numbers are large, time spent per user is low, as users typically just check in briefly on the whereabouts of family members a couple of times per day. This limits the potential for advertising exposure.
  • We do see a long runway for the core business. US penetration has tripled between 2020 and 2026 to 18%, while ANZ and the UK quintupled and septupled to 15% and 14%, respectively. Europe quintupled over the same period to just 2%. Within the US, the most engaged states are at around 25%.

Between the lines: The company stopped reporting on long-standing metrics, like comparisons to other social and streaming media companies and their respective advertising revenue per user. We read this as recognition within the company that its focus is shifting away from advertising revenue.

Life360’s advertising segment continues to disappoint overexcited market

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, up from around 60% in 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 attachable hardware, and we expect these trackers to increasingly be 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 wearable hardware, which provides 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.

Bears say

  • Life360 has not yet proven that its business model can be consistently 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.