Life360 (ASX: 360) reported first-quarter 2026 revenue up 38% to USD 143 million, driven by 36% growth in core subscription revenue and a 329% surge in advertising following the Nativo acquisition. Sales and EBITDA guidance was raised by 1% at midpoint despite technical issues in the quarter. Shares fell 11%.

Why it matters: We expected a strong result and leave our forecasts unchanged. However, the market is likely disappointed as user growth guidance was lowered to 17%-20%, from 20% (about 19 million new users). Technical issues limited net adds to 1.9 million in the quarter. We view this as temporary.

  • The issue stemmed from legitimate traffic being misclassified as fraudulent, constraining signups. While near-term revenue is unaffected, disruption could weigh on the future conversion to paid customers. Fixes are in place, demand remains strong, and we expect to recoup new users.
  • Margins remain under pressure, with sales and marketing up 62%, broadly in line with our expectations. We continue to look for fractionalization of marketing expenditure, which we have yet to see, and which is currently obscured by sales headcount increases from the Nativo acquisition.

The bottom line: We raise our fair value estimate by 2% to AUD 25.50 for no-moat Life360, reflecting the time value of money. Shares are undervalued. We believe the selloff reflects concerns that weaker user growth signals a slowdown in the long-term growth trajectory, with implications for monetization.

  • We disagree with this view and believe the technical issue represents a temporary disruption rather than a structural weakness. We expect user growth to average 12% per year over the next decade, supporting our 10-year organic revenue CAGR of 13%.
  • We expect advertising revenue growth to moderate over time. We do not believe Life360 has particularly valuable data to sell to advertisers or valuable digital real estate to display ads on, as users do not actively interact with the app for prolonged periods.

Life360’s circles continue to grow unabatedly

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 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.