This week I am looking at three technology companies that work across the family safety, school and online activity nexus, targeting different markets within those areas. It’s an interesting trio of stocks, that are not yet profitable – but each of them trying to show investors a clear pathway to that stage. Importantly, in the ESG era, I think these companies can claim that their businesses are endeavouring to bring about social good.
- Life 360(360, $8.20)
Market capitalisation: $1.3 billion
12-month total return: 58.3%
Three-year total return: 28% a year
Estimated FY24 yield: no dividend expected
Analysts’ consensus valuation: $10.41 (Stock Doctor/Refinitiv, six analysts), $10.75 (FN Arena, two analysts)
Life360 has had an interesting time on the ASX since it listed in May 2019 as CHESS Depositary Instruments (CDIs), at $4.79 apiece. The family-welfare technology platform surged as high as $13.75 by November 2021, but rising interest rates beginning in 2022 punctured many a tech story, and Life360 slid to as low as $2.51 in June 2022.
But since then, Life360 has mounted an impressive recovery – and analysts think it has plenty of scope to move higher.
I have written favourably on Life360 before: it was one of my “five stocks for 2021” in January 2021, at $3.77, and ‘Three Stocks Putting the S in ESG’ in August 2022, at $4.51.
Life360 describes itself as a technology platform that is used to locate the people, pets and things that matter most to families. Its core product – the Life360 mobile app – provides a real-time safety and coordination service for families, with features that range from location and communication, driving safety (including real-time speed monitoring), car crash alerts and roadside assistance, SOS alerts, identity protection, and disaster, medical and travel assistance.
The company says the mission of its app is to “simplify family safety,” both physical and online. One of its major attractions is that it allows parents to track teenage drivers – not just their location, but lets the parents know their child’s driving behaviour, such as speed, phone distraction, hard braking, and acceleration. And if your teenage driver gets into an accident, the app will send you an automatic message and SOS alert for emergency assistance.
The company offers its basic product on a “freemium” model: Life360 is free, but if users want to enjoy benefits such as stolen phone coverage, silent SOS help alert, live agent support, and 24/7 roadside assistance, they need to pay for a premium package. It makes most of its money through subscription-based services.
Over the last couple of years, Life360 has made some transformative acquisitions. In April 2021, Life 360 bought Jiobit, a Chicago-based provider of wearable location devices for young children, pets, and older people, in a US$37 million ($52.9 million) transaction expanding its smartphone base into the wearable device sphere. Then, in November 2021, it bought the California-based Tile, a pioneer in finding technology, in a US$205 million ($293 million) deal, bringing on-board Tile’s Bluetooth-enabled device trackers, which can equip nearly any item — such as wallets, keys or remotes — with location-based finding technology, that alerts the user through a mobile app. In this business, Tile competes with Apple’s AirTags.
In May, Life360 surprised the market, achieving adjusted profitability (that is, adjusted earnings before interest, tax, depreciation and amortisation, or EBITDA), in the first quarter of 2023, faster than expected. The company announced a 34 per cent increase in first-quarter revenue, compared to the first quarter of 2022, to $68.1 million, with its core subscription revenue up 66 per cent on the same time last year. The “adjusted EBITDA” profit of $500,000 for the first quarter of 2023 came one quarter ahead of market expectations.
As at the June 2023 half-year, the app had 54 million global monthly active users (MAU), located in 195 countries (62 per cent of them in the US. In the half-year, Life360 says it sent 921,138 ‘Help’ alerts; 18,645 ambulances were dispatched; 144 billion miles were driven with Life360 Crash Detection; 16 billion ‘safe arrival’ notifications were sent; and there were 19.7 million “item left behind” smart alerts sent through Tile.
In August, Life360 told shareholders that its net losses had narrowed to $US4.4 million ($6.8 million) for the three months ended June 30 while revenue increased 45 per cent year-on-year to $70.8 million. On its preferred measure of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), Life360 reported earnings of $US5.7 million against a loss of $US18.7 million in the prior year.
Life360 added 62,000 global net subscribers during the second quarter, compared with 73,000 in the first quarter. Total second-quarter revenue was $70.8 million, up 45%, with core Life360 subscription revenue lifting 57%, to $47.6 million. Importantly, these rises followed price increases of as high as 50%, in the second half of 2022.
The company upgraded its full-year “adjusted EBITDA” guidance for the year to December from a range of $US5 million–$US10 million to a range of between $US9 million–$US14 million. In terms of subscription revenue, FY23 guidance is for more than 50% growth, year-on-year, for the core Life360 product.
Life360 is doing what unprofitable tech companies have to do in a more difficult environment – show that it is lowering the risk, by bringing profitability closer. Analysts like the story, with the biggest caveat being that Apple and Google decide to put competitive products into the marketplace.
- Qoria (QOR, 22 cents)
Market capitalisation: $249 million
12-month total return: –31.2%
Three-year total return: –21.3% a year
Estimated FY24 yield: no dividend expected
Analysts’ consensus valuation: 36.3 cents (Stock Doctor/Refinitiv, three analysts), 44 cents (FN Arena, one analyst)
Qoria – the former Family Zone – started off with a business built around school and family cyber safety, and also parental control of their children’s online access. Family Zone’s core technology allows time and access controls to be placed on selected devices while leaving others open to access the internet freely. Its unique innovation is its patented cyber-safety ecosystem, a platform enabling a world-first collaboration between schools, parents and cyber-safety educators.
The company has built a much larger business through timely acquisitions and is emerging as what it says is the only true global online safety provider. In 2017 the company bought New Zealand-based Linewize, which had developed similar filtering technology, but its system processed data in the cloud rather than on a server, taking the pressure off the computing requirements of school systems. Family Zone incorporated Linewize technology into its own education-specific product offering, which is now marketed under the Linewize brand – this includes content filters and anti-circumvention tools; classroom screen monitoring; monitoring (human and AI) of students at risk of self-harm, depression, grooming, sexual content, bullying, school violence and other threats, in real-time. Linewize has launched Classwize, a classroom management platform that Qoria says the only product in the marketplace that gives teachers screen visibility of all devices being used in their classrooms.
In 2021, Family Zone struck a second transformational deal, raising $146 million to buy a major competitor, UK online safety business Smoothwall. Not only did Smoothwall bring a comprehensive and complementary portfolio of digital safety products, but it was also a global leader in the rapidly expanding cyber-safety segment of data analytics and monitoring. The deal greatly increased Family Zone’s global presence and scale, and the company is now a global leader on the field of online safety for K-12 (kindergarten to the end of secondary school) children. Family Zone also bought classroom cyber-safety tool Net Ref for $23 million in June 2021.
In May 2022 Family Zone struck another major deal, buying Spanish company Qustodio, a provider of comprehensive parental control solutions on all devices. The $78 million deal saw Family Zone acquire a business operating in eight languages, with more than four million users in more than 180 countries, in countries such as Spain, France, Singapore, Mexico, Japan, Brazil and Chile. The deal gave Family Zone access to the non-English-speaking world.
In May 2023, the business changed its name to Qoria. It describes its business is being focused on protecting and supporting the digital journey of children. It cross-sells its complementary products across markets in the United Kingdom, USA, Australia, New Zealand and Europe: 20 million students, in 25,000 schools in 100 countries, use a Qoria product. It is in 38% of UK schools, and 19% of US school districts. The ability to cross-sell and upsell is contributing to solid growth in the average revenue per user (ARPU) number.
In FY23, Qoria reported revenue of $82.4 million, up 82%, but a net loss of $78 million, with the loss widening from $75.4 million in FY22. From $7 million in annual recurring revenue (ARR) in June 2020, serving one million students, by July 2023, Qoria had lifted ARR to $100 million, serving 13 million students. At $100 million ARR, Qoria is running at break-even, in terms of operating cash flow.
The company has clearly set out its goals. It says that to be profitable on an EBITDA (earnings before interest, tax, depreciation and amortisation) basis will take it 12 to 18 months. In two years’ time, the company predicts it will earn margins of more than 20%.
In three years’ time, Qoria’s goal is to be “the largest and most impactful safety and wellbeing provider globally.”
Qoria plays in a different market to Life360, the educational market – analysts see a healthy runway for growth.
- Spacetalk (SPA, 2.3 cents)
Market capitalisation: $8 million
12-month total return: –59.8%
Three-year total return: –45.6% a year
Estimated FY24 yield: no dividend expected
Analysts’ consensus valuation: n/a
The smallest stock of this trio is Spacetalk, which is a wearables-enabled software subscription and mobile virtual network operator (MVNO) business, built around the theme of family safety. The company was formerly known as MGM Wireless, when it was a technology company offering a product that used SMS messaging by which schools could check-in students, and quickly notify parents if their child was absent.
More recently it has focused on wearables for children, with its Spacetalk Adventurer watch achieving some success in a market dominated by Apple. The Adventurer is an all-in-one smartwatch, 4G phone and GPS device designed for children aged five to twelve, to keep them safely connected with their families. With Spacetalk Adventurer, children can make and receive calls, video calls and texts to and from a list of contacts approved by the parents; the phone has a chat function where parents and children can set up private group chats with the whole family. The phone has no access to the internet or social media.
In May 2023, Spacetalk launched the upgraded Adventurer 2 all-in-one smartwatch, phone, and GPS safety device, for children aged five to twelve, enhanced through what the company learned from the Adventurer 1. Changes include a reduced weight suitable for young users and a sleek watch face, appealing to older age groups, at the same price ($349.) With the Spacetalk app, parents have complete access to all features of the device, including monitoring mood and activity levels, tracking location, and customising safety settings. Each device comes bundled with a SIM card from Spacetalk’s MVNO, Jumpy SIM, which will offer a range of talk, text, and data plans tailored specifically for the Adventurer 2.
Spacetalk plans to leverage its success in the children’s wearables field to become a wearables-enabled software-as-a-service (SaaS) subscription and MVNO business that provides family safety and security at every stage of life, launching new subscription products that engage whole families, and increase its customer lifetime value, thus addressing much larger markets in Australia. The company is targeting $20 million–$25 million in annual recurring revenue within three years.
To do this, Spacetalk halted its UK, Europe and USA operations, to rebuild in the Australian and New Zealand markets, but it sees its business reset into a whole-of-life strategy as offering international expansion opportunities in the future. The company recently raised $2.7 million in an entitlement offer (at 2.2 cents a share), which it says it sees as sufficient working capital to achieve sustainable positive cash flow from the second half of FY24 – which in turn will set it up for “controlled overseas expansion.”
Spacetalk generates revenue from devices (42% of revenue), Spacetalk Mobile (22%), the app (24%), and schools (12%). The rebuild of the schools’ product suite continues, with the upcoming launch of the new Spacetalk Schools app, connecting teachers and parents.
The company says the strategic turnaround that was completed in the June 2023 quarter is already showing tangible results: in FY23, Spacetalk grew annual recurring revenue (ARR) by 33%, to $8.3 million; increased subscribers by 17%, to 69,878 subscribers, underpinned by Spacetalk Mobile subscriber growth; and in the second half of the financial year, Spacetalk improved its normalised EBITDA from a loss of $2.4 million to a loss of $600,000.
In mid-September the company updated the market with a forecast of “at least” 80 per cent revenue growth for the first quarter, from $1.5 million to $3.3 million.
Spacetalk is a minnow, but an interesting one – and many people will have picked up on the fact that although the recent capital raising saw a shortfall, the shares were picked up by Alex Waislitz’s Thorney Group, which now owns almost one-quarter of the company.
With Qoria as acquisitive as it has been in recent years, many would not be surprised if it were to take a closer look at Spacetalk.
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