Life360 (ASX:360) Valuation in Focus After Record Earnings, Outlook Upgrade and Sharp Share Price Drop

Life360 (ASX:360) just delivered record quarterly earnings and raised its full-year outlook, but the stock sold off sharply as investors weighed stronger financials against slowing user growth and new bets on advertising revenue.

See our latest analysis for Life360.

Life360 shares have seen plenty of drama lately, with the strong 64% year-to-date share price return signaling big gains for early 2024 investors. However, after surging on strong subscriber-led growth and an ambitious Nativo acquisition, the stock has taken a sharp step back, dropping more than 20% in the past week alone as momentum cools and the market reassesses risks around user growth and the new advertising focus. Still, long-term holders are sitting on impressive gains, with a five-year total shareholder return above 870%.

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With share price volatility occurring alongside record results and a sizable discount to analyst price targets, investors are left to wonder if the recent dip marks a genuine buying opportunity or if all of Life360's future upside is already priced in.

Most Popular Narrative: 24.2% Undervalued

With Life360 closing at A$37.12 and the most-followed narrative assigning a fair value of A$48.96, investor optimism appears strong around the company's expansion and margin story, even in light of recent share price uncertainty.

Early-stage high-margin advertising and data/enterprise partnerships (e.g., Place Ads, Uplift, Placer.ai, Hubbell satellite network) are scaling as new revenue streams. These leverage Life360's data advantages and platform ubiquity. As these mature, they have the potential to deliver incremental margin expansion and a meaningful uplift to overall profitability.

Read the complete narrative.

Curious what secrets drive this bullish price target? The main storyline hinges on bold estimates for future margins and revenue growth, underpinned by high-conviction profit projections. Ready to see which financial forecasts make this valuation tick?

Result: Fair Value of $48.96 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Life360's bullish outlook could be undermined if tech giants expand in family tracking or if privacy concerns slow adoption and user growth.

Find out about the key risks to this Life360 narrative.

Another View: SWS DCF Model Weighs In

While the most popular narrative values Life360 significantly above its current price, our DCF model suggests a more cautious outlook. According to this model, Life360 is actually trading well above its intrinsic value of A$30.64, which signals potential overvaluation if future growth does not match lofty expectations.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Life360 for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 897 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Life360 Narrative

If these narratives don't match your own outlook, you can easily dig into the numbers yourself and build a personal view in just a few minutes. Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Life360.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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