The Life360 Inc (ASX: 360) share price has been a stunning performer over the last 12 months, rising by 190%, as shown in the chart below. However, I think the business is far from finished climbing.
In the short term, the Life360 share price could be volatile. Anything could cause a rapid decline or rise, such as the US election, inflation, interest rates, geopolitical developments and so on.
However, over the long term, business growth is usually what supports a higher valuation for the company.
What is Life360? It says it's a family connection and safety company with a leading app and tile tracking devices that "empower members to stay connected to the people, pets, and things they care about." Services include location sharing, safe driver reports, and crash detection with emergency dispatch.
I think this company has an exciting future because of three main elements.
Globally growing
When a business is growing well, compounding can become a powerful ally for the company's share price.
If a company rapidly grows customer numbers year after year, it's doing one of the most important things to help achieve good shareholder returns.
Life360 has grown at an exceptional pace over the last few years, and the latest update – the 2024 second quarter – was no different. Monthly active users (MAU) jumped 31% year on year to 70.6 million, with US growth of 20% to 40.5 million, ANZ growth of 35% to 2.4 million and international growth of 48% to 30.1 million.
Global paying circles increased 25% to 2 million, with US paying circles up 19% to 1.5 million and international paying circles rising 42% to 0.6 million.
Life360 management has said:
We believe that we are very early on in penetrating our global market opportunity, and that we have significant headroom to grow as we expand to new regions, and launch new safety, connection, and location features that make everyday family life better throughout all life stages.
Strong revenue growth
Life360 is not only seeing strong user and subscriber growth but also rapidly rising revenue, which is another positive for Life360 shares.
Firstly, Life360 reported that its average revenue per paying subscription increased 6% to $104. Annualised monthly revenue (AMR) increased 23% to $304.8 million.
Pleasingly, the 2024 second quarter total subscription revenue rose 25% year-over-year to $65.7 million. The business is guiding that its core subscription revenue year-over-year growth will be at least 25%.
If revenue keeps growing at this pace in the coming years, it could become a much larger business.
Compelling future profitability
Life360 has invested heavily in prior years, focusing on product development and advertising. It's only now starting to reach profitability. If the trend continues, I think Life360 shares can benefit in the coming years as profitability increases.
In the second quarter of 2024, the business generated positive adjusted operating profit (EBITDA) of $11 million, compared to $5.7 million in the prior corresponding period. In other words, it approximately doubled. It revealed a reported EBITDA of $5.6 million, but that included $5.8 million of IPO-related transaction costs.
Life360 also recently upgraded its positive adjusted EBITDA guidance to between $36 million and $41 million, up from the previous guidance of between $30 million and $35 million. In my opinion, upgrading guidance is a positive sign for future profitability.
Due to its software operations, the business is already making good cash flow. In the second quarter of 2024, positive operating cash flow was $3.3 million, which included the impact of $5.8 million in IPO-related transaction costs. As the business grows, I expect cash flow to soar in the next few years, which can be used for further reinvestment for shareholders.
The business expects to have positive operating cash flow for each quarter of 2024, in addition to delivering positive adjusted operating earnings. Life360 expects this trend of positive earnings to continue into 2025.
With the prospect of rising profits, I think the Life360 share price has an exciting future.
