Creating Value By Reducing Uncertainty : Life360 Inc (ASX:360)

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In the past decade, technology has managed to transform many antiquated industries and business models immensely.

Commonly stated examples include industries such as ride hailing and payment solutions, among many others.

Yet as technology continues to progress, we can expect to discover even more such use cases for these advances to supplement our daily lives.

In this post, we’ll like to share one such platform that has successfully transformed the way parents and caretakers can monitor and watch over their wards conveniently through a location-sharing phone app.

You might even be a frequent user of the app without knowing that it’s actually a listed company on the Australian stock exchange.

Life360 Inc

This promising company is actually an american IT company known as Life360 Inc. Although based in San Francisco, the company is listed on the Australian stock exchange.

https://www.cnbc.com/2019/05/12/life360-went-public-on-the-australian-securities-exchange.html

It manages the Life360 platform/app, which provides location-based services as well as sharing and notification applications to consumers globally.

Other features include integrated driving safety features and tools like Crash Detection and Roadside Assistance for frequent drivers. 

Life360’s offerings are mostly targeted at family circles at different stages of life, which are concerned about the safety of their members and find the app’s location-based services and notifications useful to mitigate uncertainty and gives them peace-of-mind.

The company operates on a “Freemium” business model, offering a limited number of products on it’s free-to-use model, while gradually increasing it’s offerings and scope of products for it’s paid subscriptions.

Revenue is derived from a recurring monthly subscription model, which scales up as users start to utilize more of it’s services.

Apart from subscription income, which the company refers to as “direct” revenue, Life360 also generates revenue through its “indirect” sources.

This includes data revenue, and lead generation commissions from third-party vendors such as Allstate insurance, an established US insurance company.

Other than standard location-sharing services, Life360 also offers other features such as arrival alerts, crash detection and roadside assistance, stolen phone coverage, SOS alerts, ID theft protection, nurse helplines, and disaster and travel assistance.

The company conducts business operations in 195 countries globally. However about 85% of their revenue comes from the US, which also accounts for about 65% of the app’s MAU (monthly active users).

Business Segments

In it’s annual report, Life360 has chosen to divide it’s revenue into two segments, Direct and Indirect revenue.

Direct revenue is derived from the subscription fees for it’s services. This segment increased by 35% year-on-year to reach US$59.4m, contributing 73% of total revenue.

This strong growth came mainly from the US operations, which is on track to double its revenue contribution since 2019.

Indirect revenue increased by 50% year-on-year to reach US$22.2m, this segment includes Data revenue and the Allstate lead generation partnership.

This segment has also doubled it’s revenue in the last two years. Like direct revenue, most of this growth came from the US.

Zooming in on Indirect revenue, we can see that a whopping 74% of revenue came from Data while the remaining 26% came from Lead generation.

Data which Life360 gathers from it’s users is monetized through Data Master Service Agreements with certain customers. Terms of agreement are somewhat unclear but it can be assumed that the more users Life360 has, the more revenue it can generate through data.

Lead generation revenue is basically income generated by promoting products from other third party agencies on it’s platform such as auto insurance from Allstate.

Performance Metrics

The company’s total revenue grew from US$58.94m in 2019 to US$80.66m in 2020. As stated, both direct and indirect revenues experienced year-on-year growth.

This is likely because of the recent launch of new features, as well as higher membership tier offerings by the company.

Other metrics which the company frequently mentions are Paying Circles (basically paying subscribers) which has been on the uprise since a very slight dip in Q2 of 2020, and also Average Revenue Per Paying Circle (US) which has increased from $60.59 in 1H18 to $84.43 in 1H21.

Regarding it’s global business, ARPPC for international customers has reached a new high of $44.22 in 1H21. This segment has seen a much slower increase as compared to the US.

Life360 has been able to produce impressive gross profit margins of about 80%. Like most other growing tech entities, the company has been spending it’s cash on Sales &Marketing, and Research &Development.

Combined with a rapidly expanding user base and a cash hoard of US$56m, such financial metrics should give the company a strong foundation on which to build and expand on.

New Initiatives

Management has listed out several initiatives to increase its user base and boost membership rates.

These include a extensive rollout of media adverts to increase brand awareness in the US and introduce the greater use case beyond just location-tracking.

As well as the introduction of new features such as personal data breach alerts to drive conversion into paid memberships.

Life360 has also acquired Jiobit, a company which specializes in wearable tracking solutions for children, pets, and the elderly.

Such initiatives will enhance the practical possibilities for the platform, and allow it to progress into the mainstream app for family services.

To End Off

As the company’s product offerings continue to gain traction, we can expect it to capture more market share in the family services market.

Over time, this might translate into a leadership position in the global market with a wide variety of use cases.

At the moment though, the stock can be considered quite “expensive”, trading at a valuation of around 15x Price to Sales ratio, while yet to turn a annual profit.

Nonetheless, investors who can confidently envision the practicality of this business should keep an eye on it’s progress as getting in relatively early can be very rewarding indeed.

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