Goldman Sachs is one of the world's most highly respected investment banks.
Its analysts scour the globe for investment opportunities and then recommend them to clients.
And while the broker may have buy ratings on a number of ASX 200 shares, it has a coveted list that is only for the best of the best.
That list is Goldman's conviction list. In the Asia-Pacific region it contains only 22 companies. Currently there are just two ASX shares on this list after both Lynas Rare Earths Ltd (ASX: LYC) and Qantas Airways Limited (ASX: QAN) were removed this month.
One of those is cloud accounting platform provider Xero Ltd (ASX: XRO), the other is a new addition in October.
Which ASX 200 stock has been added to Goldman's conviction list?
The stock in question is Life360 Inc (ASX: 360). It is a location technology company that provides services including location tracking, roadside assist, and emergency assistance via its Life360 mobile app and physical devices. At the last count, the app had approximately 70 million monthly active users across more than 150 countries.
Life360 operates a freemium business model, generating an estimated ~75% of revenue from subscriptions, ~15% from hardware sales, and ~10% from indirect revenue streams including advertising.
Goldman Sachs has added the company to its list today due to its multi-year revenue growth opportunity and strong subscription growth momentum. It commented:
The company remains early in its monetisation journey, with revenue per MAU well below other scaled freemium app peers. Life360 possesses multiple levers to drive higher monetisation including conversion of the users base to paid; International Membership roll-out; Advertising and indirect data sales; and M&A.
[Its analyst] Chris sees significant operating leverage and earnings growth to come, both in the short-term given FY24E guidance implies a material step-up in 2H24 OpEx, and in the medium term given attractive unit economics and growth in high-margin Indirect revenue streams. He sits well ahead of Visible Alpha Consensus Data EBITDA (7-10%) across FY24-26E. In the context of earnings and cash flow growing >5x across FY23-26E, valuation at ~33x EV/FCF (vs ~47x AU peers) is attractive and Chris believes Life360 can continue to re-rate towards best in class tech peers.
Goldman has a conviction buy rating and $21.85 price target on the ASX 200 stock. Based on its current share price, this implies potential upside of approximately 14% for investors between now and this time next year.
