Life360 rally continues as Morningstar calls shares overvalued
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The news: Life360 led gains in early trading as its shares continued to rally after announcing better-than-expected first-quarter revenue on Tuesday. However, investment research firm Morningstar said its shares were now overvalued.
The numbers: Life360 shares were up 10.3% to $29.98 by 10:58am AEST, outperforming the wider information technology sector which was up 1.32%. On Tuesday, the stock rallied 13.96%.
The context: The US-headquartered family safety app developer’s first-quarter revenue rose 32% compared to the same period last year, while its subscription revenue surged 37%, and “other revenue” — which includes its advertising business — almost doubled.
Morningstar equity analyst Roy Van Keulen said in an analyst note that Life360 was ahead of “our forecasts for the full year, especially due to its fast-growing advertising business”.
However, Van Keulen noted that the company’s share price “screens as materially overvalued now, as the market appears to be overestimating the advertising growth opportunity”.
The research house also has an uncertainty rating on the stock of "very high" due to the economic model of the business, the company's struggle to achieve profitability, high competition and technological disruption. Though, Morningstar noted that Life360's balance sheet was sound.
What they said: “We increase our fair value estimate for no-moat Life360 by 7% to $20 per share on upgraded advertising segment revenue forecasts,” he said.
The source: Morningstar research
