Life360 Inc (ASX: 360) shares could be dirt cheap at current levels.
That's the view of analysts at Goldman Sachs, which believes the ASX 200 tech stock's "valuation is compelling."
Particularly given how recent developments in the tech space could "drive structurally improved margin profile" for the location services technology company.
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What is Goldman saying about this ASX 200 tech stock?
Goldman believes that recent changes to the Apple App Store could signal more substantial longer-term moves. It said:
We highlight within that the myriad regulatory and civil actions against the rules imposed on developers by the major platforms Apple and Google are gradually seeing fees reduced and restrictions eased. In January, both in the US and EU, Apple has made concessions including allowing for out-of-app payments and new commission fee structures.
Although the broker doesn't expect this to have an immediate impact on the ASX 200 tech stock's business, it could be a different story over the long term for the owner of the eponymous Life360 app. Goldman adds:
While likely immaterial to Life360 in the near-term, we believe these changes may signal the potential for more substantive commission reductions in the future. Given at present Life360 pays away ~20% of subscription revenue to the platforms, and starting off a low EBITDA base, any reduction in the effective commission rate would have a significant impact on Life360's structural margin profile and earnings.
The broker has described the potential for lower commissions as a "free option" for investors. It said:
Our sensitivity analysis indicates that each 100bps reduction in the average platform commission could drive a +9%/+6% uplift to our FY24/25E Adj. EBITDA estimates. At current discounted valuation levels, we see lower commissions as effectively a free option that could provide meaningful earnings/valuation upside.
Compelling valuation
In light of the above and its belief that Life360 can grow materially already, the broker feels that its shares are cheap at current levels.
Goldman has a buy rating and $10.50 price target on the tech stock. This implies potential upside of 35% for investors over the next 12 months. It commented:
Life360's valuation is compelling at 0.18x growth-adjusted EV/GP vs 0.41x/0.49x MP1/SDR, and 11x/19x FY25E EV/EBITDA pre/post stock comp (adj. for R&D capitalisation).
