Life 360 (ASX: 360) expects revenue to increase by 31%-32% in 2025 on the prior year, at adjusted EBITDA margins of 18%-19%. Shares jumped nearly 30%.

Why it matters: The update exceeds prior guidance and our forecast. Growth in monthly active users is impressive. The company also sees a significant increase in paying users, though we will have to wait until its full-year results on March 3 to learn more about the exact revenue drivers.

  • Full-year revenue is expected to be between USD 486 million and USD 489 million, and adjusted EBITDA between USD 87 million and USD 92 million, compared with our prior forecasts of USD 477 million and USD 85 million, respectively. Our new estimates are in line with this updated guidance range.

The bottom line: We increase our fair value estimate for no-moat Life360 by 16% to $25, reflecting upgrades to our expectations for the duration of strong subscription revenue growth. At current prices, Life360 screens as materially overvalued.

  • Our upgrade is primarily driven by an upgrade to our group revenue assumptions, including the company’s expectation of 20% MAU growth next year. We now forecast the company to increase revenue at a 15% compound annual growth rate over the next decade, from 14% previously.
  • We believe shareholders have been relieved by today’s update following earlier disappointing results, but we remain cautious about the company’s ability to increase advertising revenue.

Big picture: We believe Life360’s advertising business, which has been a strong driver of investor excitement about the company over the past year, is inherently constrained by a lack of valuable data to sell to advertisers.

Life360’s MAUs and 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 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.