Life360 (the Company, ASX: 360) is a dual-listed technology platform based in San Francisco that provides location-based services, including location sharing and notifications to consumers globally. Its core offering is the Life360 mobile application which is a mobile social networking app that is essentially a location-based service to enable friends and family members to share their location with each other. The location sharing and tracking capability extends to pets, and devices like iPhones. The app currently serves 70.6 million monthly active users across 170 countries.
Favourable pricing model and strong financial metrics
Revenue is primarily generated from sales of subscriptions on its Life360 platform, based on non-cancellable monthly or annual contracts. This is the Company’s core offering which includes services and features like location sharing, driving safety, digital safety and security, and communications. These services are crucial for families in emergency situations, such as natural disasters, vehicle collisions, physical property theft, and digital identity theft.
Subscription contracts are typically billed in advance for monthly and annual contracts. Annual amounts billed are initially recorded as deferred revenue until the revenue is recognised, in accordance with generally accepted accounting principles.
Hardware revenue is generated from the sale of hardware tracking devices and related accessories. This revenue is recognised at the time products are delivered. These devices are sold through the Company’s websites, brick and mortar retail and online retail.
Other revenue is earned through the sale of location-based analytics services under data agreements with business customers in the retail and real estate sectors, municipalities and other government agencies.
Subscription revenue for the six months to June 2024 was US$127.2 million and Hardware revenue was US$22 million, while other revenue was US$13.7 million. Some customers pay in advance for annual subscriptions, while the majority pay in advance for monthly subscriptions. The unearned portion of annual customer billings is reported as Deferred revenue, and recognised as the subscription period expires. Deferred revenue of US$36.4 million was reported as a current asset at 30 June 2024.
Unsurprisingly, Subscription revenue earns the highest Gross Profit in that the Cost of Subscription revenue for the six months period was US$19.7 million, leaving a Gross Profit margin of 84 percent. Including Hardware and other revenue, the Company earned a Gross Profit margin of 76 percent, or US$123.6 million.
The largest operating expenses incurred for the six months to June 2024 were Research and Development and Sales and Marketing costs of US$54.3 million andUS$49 million respectively. Including General and administrative expenses of US$29 million resulted in a reported Loss from Operations of US$8.7 million. However, if R & D costs are capitalised and not expensed in the period when incurred, then the Profit Before Tax for the six months to June 2024 was US$45.6 million.
Breaking these numbers down by paying subscribers, the annualised Average Revenue per Paying Subscription for the six months to June 2024 was US$102.60, from approximately 2.7 million subscribers.
The net Average Selling price per Hardware unit during the period was US$16.18.
Looking ahead
Life360 currently generates about 88 percent of revenue from the US, leaving substantial runway for the international rollout of its subscription-based location service offering. This is in addition to advertising revenue as Life360 sells product adjacencies like car insurance and travel insurance to users of its tracking devices. The advertising revenue initial infrastructure is already in place for this future revenue stream.
The Company is cash flow positive, with net cash from operating activities of US$13.9 million for the 6 months to June 2024.
Cash at 30 June 2024 was US$162 million, which includes US$93 million net proceeds from a capital raising during the six months period to June 2024.
The Company has stated the existing cash balance and cash provided by sales of subscriptions and hardware devices will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. This means that existing shareholders are unlikely to be diluted by an equity capital raising in the year ahead.
The proven location-based service offering makes future adjacent safety, connection, and location features available at a very low cost per additional user, creating operating leverage that increases gross margins. This combined with Life360’s capital-light business model, driven by recurring revenue, enhances sustainable cash flow generation.
As a Founder-led business with a large global roll out opportunity ahead, and a scalable business model driven by recurring revenue, investors can justifiably anticipate shareholder value accretion over the medium term.
