Estimating The Intrinsic Value Of Life360, Inc. (ASX:360)

Life360, Inc. (ASX:360), a leading provider of location-based services, has seen remarkable growth in recent years. As the company continues to expand its user base and revenue streams, investors are eager to understand its intrinsic value. This article aims to estimate the intrinsic value of Life360 using the Discounted Cash Flow (DCF) method, focusing on the company's subscription revenue growth and profitability.

Life360's subscription-based business model and recurring revenue play a crucial role in determining its intrinsic value. As of Q3 2024, the company reported Annualized Monthly Revenue (AMR) of $336.2 million, up 30% year-over-year (YoY). This growth is driven by a 32% YoY increase in Monthly Active Users (MAUs) to 76.9 million and a 64% increase in U.S. net additions to paying circles year-over-year. Additionally, the company's ability to increase Average Revenue Per Paying Circle (ARPPC) by 42% YoY in Q2 2023 further enhances its intrinsic value by improving revenue per user.

Life360's recent acquisitions, such as Tile, have significantly contributed to its revenue growth and subscriber base. The acquisition of Tile in 2021 enabled Life360 to expand its product offerings and tap into new revenue streams. In Q3 2024, Life360 reported record global net additions to paying circles of 159 thousand, reaching nearly 2.2 million total. The company's strategy of updating legacy premium pricing and experimenting with a new Dual Tier approach led to a 53% increase in international average revenue per paying circle (ARPPC) and a 64% increase in U.S. net additions to paying circles year-over-year. Furthermore, the new Tile lineup, featuring an SOS feature, has seen direct-to-consumer sales more than double in the six weeks following the launch compared to the same period last year, enhancing Life360's subscription business as a low-cost customer acquisition device.

To estimate the intrinsic value of Life360, we'll use the DCF method, focusing on the company's subscription revenue growth and profitability. As of Q3 2024, Life360 reported AMR of $336.2 million, up 30% YoY. Assuming a constant growth rate of 20% for the next five years, we project AMR to reach $504.3 million by 2029. Applying a discount rate of 10% and using the Gordon Growth Model, the intrinsic value per share is estimated at A$1.85, based on the current share count of 165.5 million. Considering the current share price of A$1.55, Life360 appears undervalued, offering a potential upside of 19.35%.

In conclusion, Life360's subscription-based business model, recurring revenue growth, and strategic acquisitions have significantly contributed to its intrinsic value. By estimating the company's intrinsic value using the DCF method, investors can gain a better understanding of its potential and make informed decisions about their investments. As Life360 continues to grow and expand its offerings, its intrinsic value is expected to increase, providing opportunities for investors to benefit from its success.