MS Initiated with an OW

Life360 has a user base of unparalleled scale and engagement for <A$1bn Mcap. Resilience through Covid, pricing power, and leverage to re-opening are attractive features, but longer term we expect Life360 to further lift the value proposition, driving stronger unit economics as it expands globally.

c. 40% upside to A$8.60 PT:We initiate on family safety and connectivity provider Life360 at OW. This implies a FY22 EV/sales of 7.7x for 36% FY20-23 sales growth, a 78% GM, and expected cash burn of A$16m. We see a broader adoption and acceptance of location tracking and Life360's position of leadership and trust as a powerful combination. We expect consumers to value the targeted product offers, driving greater trust and engagement over time. We initiate on Life360 to expand our Australia Emerging Companies coverage. But what is Life360?Life360 strives to be the point of connection for families in the way that LinkedIn is for professionals and Facebook is for friends. It began with location tracking and has expanded to a wide range of services in its platinum tier, from roadside assistance, to ID theft protection to phone insurance. What attracted us to Life360:We are attracted to a fast-growing user base approaching 30m MAU, subscription revenue with attractive economics in terms of payback period and improving lifetime value. We also see network effects building as insights and product expansion further improve consumer value and monetisation potential. We see the Covid experience as demonstrating resilience against economic downturn. We also see the team at Life360 as highly aligned with long-term success. Drivers of upside:1. Step change in unit economics:Membership pricing led to a >50% uplift in subscriber GP, implying scope to reinvest harder and/or achieve faster profitability;2. Hardware integration: we see ownership of hardware as a higher value and stickier solution;3. App store economics:we see hardware sales, web-based payments and natural maturation as pushing app store take rates lower, even absent regulation;4. Growth outside subscriptions (indirect):with MAU approaching 30m and paying subs of c.1m we see a growing audience with a high degree of trust yet to be monetised. Key risks:1. Competition:we see Apple as Life360's biggest competitive threat - thanks to its deep pockets, OS and hardware ownership. OS neutrality and inter-operability are Life360's key advantages;2. Economics:historical cohort economics have been strong but the performance of new US and international cohorts is unknowable. We assume they will diminish; 3. Monetisation:we assume growth in indirect, despite mixed execution to date. We also assume rising average revenue per paying circle (ARPPC) over time;4. Customer ownership:currently nearly all billing relationships are via the app store. Due to the product (family location and tracking) Life360 knows its customers better than most developers, but rules are set by other parties. Catalysts:We see three key catalysts:1. 2Q CFand performance update where we expect key 2Q21 metrics to be pre-announced;2. Jiobit completion- expected in coming weeks;3. Back to school MAU performance, which should be visible in 3Q metrics.Read more...