This S&P/ASX 200 Index (ASX: XJO) tech stock has snapped back to life this past week. The Life360 Inc (ASX: 360) share price finished last week at $40.43, gaining 10.7% for the week.
That's still a long way away from its peak of $55.87 at the start of October. This past month, the ASX tech share has lost 19% of its value, but it remains 64% higher over the past 12 months.
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Bumpy rally ahead?
This year has been a volatile one for Life360. The latest spurt is propelled by renewed investor faith and strong results. However, analysts caution that the next rally might be bumpy as this ASX 200 stock is shifting its business model.
Life360 has grown from a family-tracking app to a global subscription platform. Monthly active users now exceed 92 million, paying circles are growing rapidly, and the company is experiencing both higher profitability and robust operating cash flow.
Rapid international expansion
With only a fraction of its global user base monetised and new advertising just beginning, Life360 has substantial growth potential. The business is expanding rapidly across the US and internationally, underpinned by subscription growth, rising average revenue per user, and expanding premium features.
This is reflected in the latest results, with third-quarter revenue rising 34% year over year to US$124.5 million and a sharp increase of 319% in operating cash flow to US$26.4 million. In addition, its adjusted EBITDA surged 174% to US$24.5 million.
Management of Life360 also announced user growth, an important indicator for investors that subscription demand remains durable. Those fundamentals triggered an immediate rally in this ASX 200 tech stock.
Privacy and regulatory friction
Still, the rebound hasn't been a clean sprint and halted in November. The stock plummeted after Life360 revealed the $120 million acquisition of ad-tech firm Nativo. Investors reacted warily as they viewed the deal as a signal that the company is leaning harder into advertising.
This is a lower-margin, harder-to-execute line of business. Advertising also carries privacy and regulatory friction. Monetising location data at scale invites scrutiny, while the integration of ad-tech teams will prove difficult. It will be challenging for Life360 to prove that ad revenue will be sticky and profitable.
Analysts' outlook
After its strategic change, several brokers lowered their price targets for this ASX 200 tech stock, though they remain optimistic overall. While most analysts still recommend buying the stock, opinions differ on how much the new advertising strategy will improve margins and boost free cash flow.
The average 12-month price target for the $6.6 billion tech company is close to $49.80. This suggests a 24% upside for this ASX 200 tech stock. Bell Potter is more bullish on the company's outlook. It recently put a buy rating and $52.50 price target on Life360.
