The Life360 Inc (ASX: 360) share price swung like a pendulum on Tuesday as investors digested the company’s first-half results.
After tumbling more than 8% in early morning trade, the Life360 share price made a stunning recovery to finish the day more than 5% higher.
Despite yesterday’s rise, the Life360 share price is still languishing around 40% lower this year.
Could the dip present a buying opportunity for this up-and-coming ASX tech share?
Setting the scene
Life360 is a US-based company that made a name for itself by designing a family safety app for smartphones.
The company offers a freemium model where a basic subscription allows families (also known as ‘circles’) to see the whereabouts of other members in their group on a map in real-time. It’s similar to Apple Inc’s (NASDAQ: AAPL) Find My feature on its devices.
But Life360 differentiates itself through the comprehensiveness of features on offer. Families can access a range of features through the company’s paid subscriptions, including crash detection, driver reports, roadside assistance, and ID theft protection.
While this remains Life360’s core offering, the company has turned to acquisitions to build out its ecosystem.
In September 2021, it completed the acquisition of Jiobit, a provider of wearable location devices for young children, pets, and seniors.
Not long after, Life360 made headlines when it announced the US$170 million acquisition of Tile, a leading provider of location trackers that can be attached to valuable items.
With these acquisitions under its belt, Life360 has completed its ‘360’ vision of protecting people, pets, and things.
The company believes these deals have expanded its addressable market. And integrated together, it expects its new bundled offering to lead to higher conversion rates to paid subscriptions, increased average revenue per paying circle, and improved retention rates.
Profitability ahoy
As a consumer-focused software-as-a-service (SaaS) business, Life360 reports plenty of metrics for investors to monitor.
But beyond these metrics and financials, what likely caught the attention of the market yesterday was the company’s commentary around profitability.
The flavor of February’s reporting season earlier this year was costs and, in turn, profits. ASX growth shares, in particular, were swiftly and brutally sold down on signs of increasing operating expenses and/or no line of sight to profitability.
So perhaps learning from this, Life360 has made its focus on the bottom line clear.
In welcome news for investors, the company expects to deliver positive cash flow in the fourth quarter of CY22. And according to management, its current trajectory should see Life360 becoming earnings before interest, tax, depreciation and amortization (EBITDA) positive by late CY23.
This path to profitability is underpinned by a leaner cost base, organizational cost efficiencies, reducing commissions, new bundled memberships, and improving subscriber metrics.
What’s more, the company is currently market testing higher price points for its subscriptions. If Life360 does indeed have latent pricing power and decides to flex it, these price increases could add further upside.
Life360 share price snapshot
The Life360 share price went on a tear in 2021, rocketing more than 150% to be on the radar of many ASX growth investors.
2022 has not been so kind, with Life360 shares tumbling roughly 40% in the year to date.
The company expects to deliver revenue between US$245 million and US$260 million in CY22. The midpoint of this range represents 124% growth compared to CY21, predominantly driven by the addition of Tile.
Taking the midpoint of CY22 revenue guidance, Life360 shares are trading on a forward price-to-sales ratio of roughly 3x.
With a rapidly-growing user base, strong optionality, improving economics, and a founder at the helm, Life360 is an ASX tech share firmly on my watchlist.