BofA downgrades Life360 stock rating on slower ad growth

Bank of America (BofA) recently revised its rating on Life360 (NASDAQ:LIF) stock, moving it from a Buy to Neutral, and lowered its price target from $60 to $45. The bank's newest trading price for the shares stands at $41.98, which is below the updated target, although data from InvestingPro indicates the stock could still be undervalued.

BofA cited mixed third-quarter performance for the downgrade. While global monthly active users increased by 17%, surpassing expectations, Life360's advertising revenue of $25 million fell short of BofA's estimate of $29 million and the Street's $28 million. Nonetheless, advertising revenue still rose by $3 million compared to the previous quarter.

The firm expressed concerns about the fourth quarter and 2027 outlook, stating there is no significant business acceleration from Life360's Pet Tracker, Uber, or Nativo initiatives. They noted progress is modest and lowered their 2027 revenue and EBITDA estimates by 3% and 5%, respectively, reflecting the negative impact of slower advertising revenue and higher sales and marketing investments. These revised estimates are lower than what analysts had previously anticipated.

BofA's valuation of Life360 now stands at approximately 19 times 2027 enterprise value to EBITDA, a valuation they view as fair, given the strong subscription growth but slower-than-expected advertising monetization. The company holds a solid financial health score on InvestingPro, driven by 34% revenue growth over the past year and a robust balance sheet.

Life360 reported stronger-than-expected earnings in Q3 2026, with an adjusted earnings per share (EPS) of $0.38, exceeding Wall Street's expectation of $0.2425. Revenue for the quarter increased by 40% from the previous year, reaching $174.1 million. However, the company revised its full-year revenue and EBITDA guidance upward, showcasing a positive outlook. The company also adjusted its advertising forecast downward and expressed caution that growth in U.S. paying circles might slow due to recent price increases.

These developments have drawn the attention of investors, considering the mixed outlook. The company's recent performance has been impacted by stronger margins and higher-than-expected profitability. Analysts are expected to closely monitor Life360's strategic moves and market responses in the upcoming quarters, as the company continues to evolve and navigate the market landscape.