LifeLock, Inc.: A Growth Story In Making

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

Identity theft is one of the biggest problems of our high-tech society. In fact, five in every hundred U.S. adults have been a victim of this crime. So, people are increasingly looking for a product that offers proactive, comprehensive and guaranteed protection. That’s where LifeLock Inc. (LOCK) comes. LifeLock Inc. provides identity theft protection services for household consumers, and fraud protection and identity risk assessment services for business enterprises.

Business Performance

LifeLock needs a strong network of users to grow its business. Similar to credit card companies and social networking sites, the growing number of users plays a key role in its valuation. Users contribute to the value of the network because their responses to alerted transactions help LifeLock strengthen its data repositories and make its algorithm more accurate.

As of March 31, 2013, the company has 2.6 million paying members, including over 300 business enterprises such as wireless service providers, credit card issuers and financial institutions. LifeLock’s member base has been growing at over 20% annually. The member retention rate also increased from 84.3% in 1Q2012 to 87.2% in the first quarter this year.

On an average, LifeLock spends $150 to get each new customer, but receives only $9.80 in revenues per user per month. That means it has to retain a customer for at least 16 months before LifeLock starts earning profits from that user. However, as LifeLock and identity theft are becoming a synonymous phrase in households, the cost of acquisition will slowly come down. With over 70 million potential consumers in the domestic market, the company has a lot of potential.

LifeLock’s highly differentiated proactive offerings give it an edge over its competitors that provide traditional reactive solutions. LifeLock Ultimate, the premium value service of the company has witnessed rapid growth. As consumers increasingly realize the negative consequences of identity theft, they would turn to a proactive protection service provider like LifeLock.

Financial Position

LifeLock reported a 42% increase in its first quarter revenues. Total revenues for the quarter ended March 31, 2013 came at $82.1 million, compared to $57.6 million in the same period of 2012. Consumer revenues were $75.1 million, a 32% YoY increase, while enterprise revenues were $7 million.

The company posted a net loss of $4.1 million during the quarter, down from a profit of $18.5 million in the comparable period of last year. In 1Q2012, LifeLock had received a $14.3 million tax benefit due to the acquisition of ID Analytics. However, adjusted income for the latest quarter came at $0.6 million or one cent a share, compared to $0.4 million in 1Q2012.

LifeLock’s adjusted EBITDA is $1.9 million. At the end of the first quarter, it had a free cash flow of $11.5 million. LifeLock’s balance sheet shows cash and cash equivalents of $145.3 million as of March 31. Most importantly, the company has absolutely zero debt.

Conclusion

LifeLock launched its IPO in October 2012 at $9 a share, and the stock currently trades at around $9.85, rising about 10%. With a solid growth record, almost negligible competition, zero debt, an underserved market and a strong brand, LifeLock is a perfect buying opportunity for investors who want to ride a great growth story in making.