Life360 Inc (ASX: 360) shares are trading about 60% below where brokers think they should be, and the difference has a very specific cause.
The stock closed Wednesday at $19.64, whereas the average analyst target price is $31.72. Every broker covering the company rates it a buy or strong buy.
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Why Life360 shares fell so far
The de-rating started well before the latest result.
The shares peaked at $55.44 in early October and then fell to an annual low of $17.91 by mid-April.
Most of that was sector-wide, as investors sold high-multiple technology names on fears that artificial intelligence could erode software business models.
ASX tech stocks then rallied through June and early August on a strong first quarter.
The second quarter update in mid-August ended that recovery, and the shares shed 30% of their value in the weeks that followed.
What the second quarter showed
Despite this pullback, second quarter numbers were at a record high.
Total revenue rose 38% year-on-year to US$159.0 million, and adjusted EBITDA increased 53% to US$31.1 million.
Annualised monthly revenue grew 29% to US$537.2 million and paying circles jumped 27% to 3.2 million.
Advertising revenue reached a record US$22 million, up 315%, while operating cash flow grew 79% to US$23.8 million.
Global monthly active users rose 4.6 million in the quarter to approximately 102.4 million.
Chief executive Lauren Antonoff framed the quarter around the user gowth milestone.
This quarter, Life360 crossed 100 million monthly active users—proof of the trust millions of families place in us to stay connected, coordinated, and safe. Disciplined execution drove strong Paying Circle growth and put MAU back on the growth trajectory we outlined last quarter.
However, operating expenses also rose 43% to US$127 million, largely on growth and integration costs from the Nativo acquisition.
The two details that sank the result
The first is guidance.
Life360 left FY26 revenue guidance at US$650 million to US$685 million and adjusted EBITDA at US$130 million to US$140 million.
Shareholders had grown used to upgrades, but received a reiteration instead.
The second is the quality of the earnings beat.
Bell Potter noted that paying circles grew by 185,000 against its 155,000 forecast and consensus of 136,000, and that adjusted EBITDA comfortably beat its US$25.7 million estimate.
Roughly US$4 million of that beat, however, came from a tariff refund.
Underlying adjusted EBITDA was therefore closer to US$27 million.
What brokers say Life360 shares are worth
Bell Potter kept its buy rating and trimmed its target slightly.
The net impact on our target price is a 3% decrease to $34.00 which has all been driven by the DCF due to modest downgrades and changes in working capital assumptions. We retain our BUY recommendation and note we expect the buyback to be more active this quarter after only modestly commencing last quarter.
Every analyst covering the company currently holds a buy or strong buy rating.
The $31.72 average target implies about 60% upside, and the most bullish sits above $40.
Foolish takeaway
The bull case for Life360 shares is that a company growing revenue at 38% should not trade on 25 times earnings.
The bear case is that the market no longer believes guidance will be beaten, and a tariff refund flatters the results.
I tend to agree more with the brokers than the share price, because paying circles and advertising are both compounding faster than the cost base.
In the short-term, however, Life360 shares will stay volatile until management either upgrades guidance or explains why it cannot.
