Why the Life360 (ASX:360) share price hit a record and could go higher

This tech share has more than doubled in value in 2021…

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The Life360 Inc (ASX: 360) share price defied weakness in the tech sector to rise to a record high this morning.

The family-focused app maker’s shares rose 4% to $8.15.

When the Life360 share price reached that level, it meant it was up almost 110% since the start of the year.

Why is the Life360 share price rising?

Investors have been buying the company’s shares this morning following the release of a bullish broker note out of Bell Potter.

According to the note, the broker has retained its buy rating and lifted its price target on the company’s shares by 19% to $9.25.

Based on the latest Life360 share price, this implies potential upside of 13.5% over the next 12 months.

What did Bell Potter say?

Bell Potter notes that San Francisco-based Nextdoor is due to merge with a special purpose acquisition company (SPAC) called Khosla Ventures Acquisition Company II.

This deal values Nextdoor at US$4.3 billion, which represents an enterprise value to revenue multiple of 20 times based on forecast 2021 revenues of US$178 million.

It feels this is relevant to Life360 because Nextdoor is a good company to compare it against. This is due to Nextdoor being a social media platform with a very similar number of active users (~28 million).

However, it also highlights that while Nextdoor generates more revenue (forecast: US$178 million vs US$105 million), it is expected to make a greater loss (EBITDA forecast: -US$50 million vs -US$15 million).

As result, it feels that although Life360 is a year or two behind Nextdoor in scale, it is a better quality business. Particularly given that Life360’s subscription revenue is stickier and more recurring than Nextdoor’s advertising revenue.

Valuation

In light of the above, the broker has lifted the multiples that it feels the Life360 share price deserves to trade on.

Bell Potter commented: “While there is no change in our forecasts we have updated each valuation we use in the determination of our price target for market movements and time creep. On the back of the Nextdoor deal we have also switched from a 10% discount to 10% premium in our EV/Revenue valuation and lowered the WACC in our DCF from 9.5% to 9.0%. The net result is a 19% increase in our PT to $9.25 which is >15% premium to the share price so we maintain our BUY recommendation. We note, however, this PT still only equates to a forward EV/Revenue multiple of c.10x.”

Should you invest $1,000 in Life360 right now?

Before you consider Life360, you'll want to hear this.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Life360, Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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