Life360, Inc. (360) Earnings Call Transcript & Summary

Okay. Well, we've got a minute or so until the official start time. So why don't I get through the awkward disclosure comments. So for important disclosures, please see the Morgan Stanley research website at www.morganstanley.com/researchdisclosures or if you have any questions, reach out to your Morgan Stanley sales representative. Good morning, everyone. Welcome to the next session here at the Morgan Stanley TMT Conference. My name is Andrew McLeod from Morgan Stanley's TMT research team in Sydney, Australia. And today, it's my pleasure to be hosting Russell Burke, CFO from Life360. I should say upfront, our covering analyst, James Bales, unfortunately can't be here today. So it's my great pleasure to be having this chat. Russell, thank you for your time.

Thank you, Andrew. It's great to spend some time with you.

Yes, fantastic. So I think as I look around the room here, I can see quite a few familiar faces who I think know the story well, but not everybody does know the Life360 story well, Russell. So I thought it'd be a great place to start, maybe just with a bit of history as well as to the company, founding story, listing on the ASX, NASDAQ, how that all progressed. A little bit of history. And then, I think, a bit of a sketch of the product as well, and then we'll move into a few other debates.

Sure, absolutely. So the company is now some 18 years old. In many respects, typical Silicon Valley tech start-up about 18 years old. Chris and Alex, the 2 cofounders is still with the company. Chris is the CEO and Alex is still on our Board. Chris had a vision and it really sort of came after Hurricane Katrina of being able to communicate in a difficult environment in and really around families. And that was his sort of vision or at least the starting inspiration for Life360. And that's what he started off doing. They've had a couple of changes over the course of time. But the company really evolved from being sort of initially location tracking to location awareness to driving awareness. That was a real pivot point for the company. And then some 6 years ago, they introduced what is now -- what we refer to as the triple tier range of premium apps. And that's really -- that introduced a whole range of safety aspects and it's really things that are used every day by our members, whether that's driving tools or just location awareness, passive connectivity within the family is really important. And then a range of tools, which are more peace of mind, insurance, if you like things like roadside assistance or crash detection and emergency response, ID theft protection, things that you don't necessarily use every day, but it's great to have the -- know that they're there really gives that peace of mind. In terms of the financial evolution of the company, was your typical Silicon Valley startup went through several rounds of VC funding. They got to what would have been Series E. And one of the original investors was an Australian fund introduced them to the ASX. So May '19, they did an IPO on the ASX and we've been a public company ever since with always the intention to, if you like, come home to the U.S. So there was always the intention of a U.S. public listing which we did in June last year, listed on NASDAQ, and it's the results since then has been great. We've been very happy with that. And we've been very happy with being a dual-listed company. It's something that we've sort of grown into and it's working really well for us.

Fantastic. Well, the share price has certainly done very well over the last couple of years as well. Maybe if we can start off getting a bit of a sketch, Russell, average -- monthly average users, the size of the customer base you have at the moment. And what your strategies are? What's worked well so far growing it? And what the plans are or strategies are to grow moving forward?

Yes. And in answering that, I'll also step back and sort of talk about our philosophy. We are very much a freemium business model. And that is important because it really drives everything about the company and really drives the business itself. So starting at the very beginning, Chris and Alex really start -- had an intention to build up that user base. And they spent a long time just building up free user base before they even started monetizing. So that free user base now is 80 million globally. We have 80 million global MAU. And that, as I say, drives the whole business, because it gives us a huge, very low-cost acquisition pool for premium membership. And then as we go forward, thinking about the advertising revenue stream that we've really just launched, it also provides a huge base for monetizing within data and advertising.

And how -- what's been most effective in growing that free user base over time?

The interesting thing is it's very much a word of mouth. 70% to 80% of our growth is organic, and it's really starting from the ground up. I know I first became a member years before I took this role, and it was about hearing from friends, what they were using to help protect their kids. And that's what's really generated our growth. It's very much word of mouth. We've supplemented it with marketing to really boost growth, but it's that virality that's really driven us and that's continued on.

That was very much experienced in the McLeod household. My family as well. I remember my wife coming over from Mother's groups talking about that and saying, what a great idea. So I think every -- certainly, every parents tried that in Sydney. So -- in terms of the user base you've got at the moment, Russell, can you talk a little bit about geographically where that's located? The U.S. is obviously the largest market you have?

It is the largest market, although now the -- with our 80 million MAU, it's roughly -- roughly about 44 million of that is in the U.S. So you can tell that we've got a very strong international presence. Traditionally, up until probably 18 months ago, we're very much focused on the U.S. as our sort of home territory. And up to that point, sort of some 85% of the revenues were U.S. based. Starting about 18 months ago, we started to get much more focus to international. And we've existed in that international in 150 countries plus just through being on the 2 major platforms. It's relatively easy for us to do. So we had a presence. We had a free product and a very scaled down international product. But as I say, when we started to focus on international, we initially focused on just improving the international user experience, and that helped to drive the initial part of growth there. Then we've rolled out the -- what we refer to as the U.S. style triple tier product to some major developed territories, initially U.K. Canada, Australia and New Zealand, and we've seen incredible success with that. Revenue for Australia and New Zealand, for example, grew 95% last year. So growing very, very strongly. And then we -- late last year, we rolled out a -- what we've referred to as dual tier, it's essentially, the silver and gold tiers with a digital-only product that we can scale up really quickly essentially to the rest of the world. And that's introduced a higher level of value within the premium subscription for those countries.

And the U.S. market still growing. It's not a...

U.S. market is fascinating. I'm sure many of you have seen the map of the U.S. that we have in our investor presentation and penetration within the U.S. is stratified. It's actually focused on the South and Midwest, somewhat counterintuitively, but it's really because those areas tend to -- they tend to get married more earlier in life and have kids more quickly. So it actually moved through that digital native experience that is very useful for us more quickly. So we are more highly penetrated in some of those states, but still growing very quickly, even in the most highly penetrated states and lots and lots of runway left in the rest of the country.

Great. And then can you talk a bit about the engagement in, I guess, how it varies across different markets, et cetera? Or how you measure that or investors should think about engagement?

Yes. An engagement is part of our real focus on member experience. And as I said, our business model is driven by the premium model. And that means that we really want to have a lot of focus on even the free member experience. That's important because it drives that overall base and provides the hooks to move people into premium subscription. So making that experience a great experience is a real mission for us. And that includes engagement. So we measure engagement probably primarily by the ratio of DAU to MAU. And again, if you look at that, we're at a level that is right up there with a lot of the major players in the U.S. in particular. People come back to us sort of 5 times a day and use the product. So that is part of what drives our overall member experience.

And engagement in -- do you see differences in part -- different parts of the world, in different states of the U.S. or Australia versus U.S.?

Yes. Yes. I think if you think about penetration generally and awareness, we're obviously most highly penetrated and higher level of awareness in the U.S., quickly gaining -- training in that -- in those other triple tier territories. But outside of that, penetration is single -- low single digits. We've got a long way to go. But what we find with penetration is that once we get to sort of that 3%, 4% level, that's when virality really starts to kick in and we see that, that growth really start to drive. And we've seen that time and time again as we've rolled out in these territories.

So there's a life cycle -- a typical life cycle for every market you enter?

There is. And I think Australia, New Zealand, again, is a good example of that. Just over a 4-year period that penetration has sort of moved from 4% to much closer to the U.S. of 11%, 12%. And we expect that to continue to grow.

Interesting. So you talk about it's a premium model at its core, but then you're converting to subscribers a certain number of people. How far -- how long are you in that journey?

It's interesting. Again, a slightly different measure of penetration. But in terms of the ratio of paid users to the overall base, in the U.S., that's around 12%. And it's been fairly steady for a while, which is actually fine for us. We will have the opportunity to push that up, but our focus is on increasing the overall base. So if you like, in that calculation, we're focused on increasing the denominator, that MAU number. And as long as we are able, we will continue to grow quickly there. I think we grew MAU generally by about 30% last year. And we're going to keep focusing on that. At some point in the future, we'll have the opportunity to push that penetration up further and really start to monetize more heavily. But we see the benefit at this point just continuing to grow.

Capturing more users overall.

Absolutely.

So when you look for -- I'm sure you have strategies to convert into paying customers as well. Can you talk a little bit about that? Is it AI something that you're harnessing already or see opportunities like you can identify when someone is more likely to sign up from their behavior, I imagine?

We're starting to deploy those sort of tools. And we look at that sort of across the funnel. Our high volume is sort of pushing people into the top of the funnel and then understanding the journey throughout to premium. And that can be a very long journey, which is absolutely fine for us. In fact, we typically see sort of conversion as 30% in the first month, another 30% in the next 11 months. The rest might come over the next couple of years. And that's the beauty of having this sort of freemium model and the very long retention curve for the free user base and that availability to convert. But as we think about that conversion, it's about understanding the member experience, creating the hooks within that, that encourage people to convert to premium. And as I said, it's about the experience. So for example, one of the things that people love about Life360 is the passive connectivity with notifications. When your kids get to school or when your wife is coming home from work, having that notification, and that involves sort of setting some places, which is a little limited in the free user experience. And as people use that more and more, they want more, and that helps push them into a premium subscription.

Interesting. And can you talk a little bit about the pricing strategy? What's the history been on pricing? And what is the average ARPU at the moment for a paying customer?

We think of it in terms of ARPPC generally for the subscription product. And on an annualized basis, it's about $150 per paying circle for the U.S. a little -- quite a bit less internationally, but with the opportunity to bring that up over a period of time. With pricing generally, we've -- where we have in the U.S., in particular, in the triple tier territory is a 3-tiered product. It's silver, gold and platinum. Most people are in gold because that's where we land them, probably 80% of our paid subscribers are in gold. We took the advantage a little more than 12 months ago to pretty significantly increase prices. And we did that. We did not see a real churn event. We very, very quickly back to growth even though we significantly increased prices. So we've proved the elasticity of that. We'll have the opportunity to increase prices going forward. Right now, we're focused on putting more value and more engagement into the experience. And we'll have that opportunity to look at prices again in the future. Then on the international side, just the introduction of triple tier and dual tier have effectively been a pretty significant price increase in those territories because we're lifting the value of the product and repricing the product.

Great. And Russell, can you talk a little bit about the product pipeline? How much are you spending on R&D and product enhancements? And how do you typically layer those in? Are they laid in when you're having your price increases? Or what's the sort of strategy on that front?

It's a continuous process. A big part of our OpEx base is the R&D team, the engineering team, and they are broken out into a few different areas, but really focused on product and the member experience essentially. So it does tend to be a continuous process. We're continually evolving. We're -- just the look and feel of the app has sort of changed quite a bit in the last 12 months even. And then part of that additionally is our acquisition of Tile a couple of years ago, bringing devices into that. So you now can see your Tiles on the Life360 map as well. So it's continuous evolution.

And as I was preparing for today's meeting a lot in the last 12 months about advertising and the potential for advertising. So -- and I'm sure various people in the room are up to speed on that, but maybe not everyone. So maybe if you could just talk to the opportunity in advertising, which, as I understand, it is obviously another way to access or monetize the premium audience sorry, the freemium audience you've...

Yes. No, it is. It's exciting on a couple of different levels. And we're very early days on advertising. We've really just started kicked that off in '24. We got to the point where we saw that we had sufficient scale, and we could do it in a way that would not interfere with the member experience. And again, that is key for us. What we have learned so far is that we really do have a very valuable audience. The audience that we have with the first-party location data is something that advertisers really, really want to get. And it's getting more difficult to get that really relevant information at this point. A lot of the changes that have gone on in the last couple of years have made that more difficult. So our goal here for advertiser is to be able to deliver a contextually relevant offer to our members, which means that it hits them at the right place at the right time, and we know where -- when and where they are. So it's meaningful to them. And that also means it's highly valuable to advertisers. So that's our end goal here. And we don't want to interfere with the member experience. So we kicked off by introducing pretty basic sort of banner ads within the free member base. But even that is sort of a banner on the bottom of the app. It doesn't interfere with the member experience. It's given us a lot of information. And we're now in the process of really building that out, ramping up our advertising. There's still quite a bit of work to do where we're working on the ad tech infrastructure side. As part of our earnings last week, we announced a small acquisition of assets from Fantix. And that's more or less an acqui-hire. It brought a small but experienced team on board. They've dealt with the data science piece of this for a while, and we've actually been working with them as a vendor. So we knew what their capabilities were, and they've also developed some tools that we know that we will need to get to this end goal here. So that's part of the building the data infrastructure part. We'll also need to build a sales team. We've got a very small sales team now, but they've been very active going out, talking to people, starting to develop that pipeline of advertisers and partners. So we're pretty excited about the potential for it. And I think we've said in the long term, it certainly has the potential to rival subscription revenue in terms of a revenue base. So yes, that's where we're working on advertising. The -- yes, let's...

Have you given -- how should investors try and triangulate how -- the ramp-up in advertising? Is it -- have you given any guidance other than that comment about you could rival in terms of -- I guess that's saying $100 ARPU per annum, roughly?

I mean in terms of guidance, very specifically with our '25 guidance, we sort of guided to other revenue, which includes advertising and data revenue. We have a data revenue stream in place as well. So that's provided some goal post for this year. In terms of overall how we think about it, we did include some case studies effectively in our investor presentation. We've spent quite a bit of time talking to other companies looking at the evolution of their advertising business. So that sort of sets out the potential here. And each case is a little different. Our audience experience is a little different from some of these companies. But you can look at certainly, Uber have built $1 billion revenue, advertising revenue business, but it's taken them 4 or 5 years to get to that point. There's typically sort of a range, it seems of sort of $3 to $6 of ARPU in this sort of business at the moment. We definitely see that as a potential.

Great. And I know it's early in your journey on advertising, but have you got anecdotes you can share from the advertiser perspective, some that have early adopters who've embraced the platform? And what's been appealing to them?

Yes. I think one of the interesting experiments that we did was actually with Uber. And that was very interesting because it used a feature that we already had built within the Life360 app. One of the features that we'd only really introduced in the last 12 months is a notification when you land at an airport.

Yes, I got that in San Francisco 2 years ago. It's working.

Yes. And Andrew has landed at SFO and we notify your family circle automatically.

Yes. My wife said it was much more reliable to me, letting you know that I landed.

So well, I don't know about you, but I always have to text landed but...

Probably more...

It's easier. But we took that feature within the app and worked with Uber to deliver an additional notification to the person that's just landed saying, see you've just landed at SFO, would you like to book an Uber, we can give you a 10% discount. And that was a really interesting application. It had a lot of great feedback. Uber were very happy with the way it worked. In itself, the volume is not going to be a needle mover, but it was a good experiment with how we can use features within the app besides just sort of your broad advertising.

Fascinating. So we've spoken about a lot of the good work you're doing and the positive momentum, but we should also spend a little bit of time talking about some of the risks for the business, competition, people always raise -- commonly raise the substitute products that could emerge from Apple or others, et cetera. Maybe spend a moment on that, Russell?

Absolutely. I think broadly from a competitive set in terms of pure startups. We're now at a scale that makes that exceedingly difficult. We've invested so much over a long period of time to get to that 80 million MAU would be exceedingly difficult from a standing start. We're often asked about the big players, Apple. And Find My, for example, is a great product. So it's a good utility within the Apple ecosystem to locate your family or your Mac or your iPhone. But it's purely for that purpose. It's very different to the Life360 experience, which is about a broad family, connectivity and safety experience. And it's -- we see no sort of intention for Apple or really anyone else at this point to any of those big players to move into that space. Several of them experimented with it over time and sort of shut it down from a family aspect. And then the other thing is that we are a truly multi-platform whether you have an iPhone or an Android phone, your experience of Life360 is exactly the same. And what we actually see is once you get more than 3 members in a family circle, more than half of our family circles are multi-platform. There's both platforms in the circle.

Right. One of the other risks that comes up from time to time on privacy data?

Yes. Yes. No, we actually very, very focused on that because again, it comes back to the member experience. We have built a very high level of trust with our members over a period of time, and we want to protect that. And with things like advertising, it gives us the benefit of a very high opt-in rate, for example, for IDFA. So that enhances our ability to monetize there. So we're going to protect that at all costs. We moved out of -- we're in a sort of data business of selling to data brokers a few years ago. We've moved out of that for specifically that reason. We now have just a single arrangement where the data doesn't -- essentially doesn't leave our service, and it's going to be the same with advertising, which is why we're -- we want to build these tools ourselves to really have control over protecting that data. And it's just part of that trust cycle.

And I imagine there are differences in different geographies around the world as well on data?

There's different regulations, which we've dealt with as we've moved into different territories, Europe with GDPR, et cetera, but we've dealt with that as we've expanded.

Great. New products I've been reading with interest wasn't aware of the pet product. Maybe talk a little bit about the plans you've got for that division?

Yes. Yes. So sort of stepping back slightly, it's part of an overall strategy for us to expand our use cases within Life360 and also expand the longevity of premium subscription in particular. So the pet tracking is a great example of that. It's -- it will be a fairly expensive GPS device because people anecdotally, a lot of people, I think, are using Bluetooth devices, whether it's a Tile or an air tag with their pets at the moment. But the disadvantage is that they don't update in real time. So if your dog gets out and they're sort of running away, you can't see exactly where it is on a real-time basis. So this will be a GPS device. We will sell it at a highly subsidized price, because we want to make it part of the subscription...

Right. So it is part of the -- the vision is as part of the one bundle that you...

Yes. No. We'll include it in our existing Gold and Platinum Bundles. But because it's a GPS device, it does require a cellular service to maintain the best use of it. And therefore -- so we see, therefore, a retention benefit in both ways. People will need to continue the service to have access to that cellular service. And as we've been saying, pets don't go to college. So they stay with the family for a long period of time. So both of those, we expect to really drive good retention benefits for us.

Yes. And when does that come to market? When is that?

It will be late this year.

Right. And there's a product or thinking on elder care as well?

Yes, that's our next sort of strategic cap off the rank, if you like, and it's interesting because we already have people adding parents and grandparents to their family circle. So we're already seeing there sort of drive for that. There's a number of things that we can do within the existing software and the existing phone device that would enhance that. So things like just being able to detect when the phone hasn't been used for a period of time or the obvious sort of fall type situation. We'll then look at some sort of specialist device as well.

And how should investors think about those sort of opportunities in perspective? Maybe from a TAM, have you sort of mapped out core TAM versus pets versus elder or so this is all part of expanding different TAMs for the business, adding to the overall ARPU, reducing churn...

It is. It is. And it's part of our overall vision here to be the go-to digital hub for the family or if you like, a super app. So we're going to develop these additional enhancements to the Life360 experience. But then further on, there's multiple aspects that you could plug into that digital hub as well, things like auto insurance, life insurance, family financial services, which we wouldn't necessarily develop ourselves, but we would go into partnerships and have a plug into the digital hub.

Fascinating. Well, it's been a great discussion, Russell. Thank you for your time.

Appreciate it.

We've just used up our official time quota, but if anyone wants to come up and grab Russell or R.J. for 5, 10 minutes before their next commitment, you can probably make your way to the front now and say hello. But thank you very much for your time, and thank you for joining us, everyone.

Thanks, Andrew.