Membership DevelopmentThe fear of identity theft and fraud drives the growth of LifeLock, a company which currently offers four different products: LifeLock identity theft protection, LifeLock Command Center, LifeLock Ultimate and LifeLock Credit Score Manager. LifeLock identity theft protection consists of identity threat detection technology based on information supplied by multiple vendors including ID Analytics.

Lifelock provides a $1 million guarantee in the event of identity theft. The guarantee is that Lifelock will spend up to $1,000,000 on legal and associated fees necessary in restoring a customer’s identity.

Digital wallets make it easy for consumers to store payment information for quick online transactions. Tablet computers and wireless hot spots make it easy to shop or bank from a hotel, cafe or even park bench.  These modern conveniences are also a godsend for identity thieves, scammers and other criminals.

Identity theft cost Americans $21 billion last year, according to a report by Javelin Strategy & Research. And it was the No. 1 consumer complaint filed with the Federal Trade Commission for a 13th straight year.

“Advances in technology are unfortunately creating more opportunities for thieves,” said Hilary Schneider, president of the market-leading ID-theft protection firm LifeLock (LOCK). That tail wind helped the company grow sales by better than 40%, year over year, in each of its three quarterly reports since last year’s IPO. Analysts expect at least a 25.6% sales boost in its June-ending second quarter, as its customer base and average revenue per user climb.

LifeLock competes with the credit-monitoring bureaus. Banks and credit card issuers also watch out for fraudulent activity. But analysts say LifeLock has the most comprehensive suite of proactive services — including near-real-time monitoring of account openings and loan requests, which can stop many fraud attempts from occurring. It also offers remediation services to cover losses and clean up the mess if a breach occurs.

Membership Surge

“We believe that identity protection is an issue that consumers care about. It’s touched a nerve with consumers,” Needham analyst Scott Zeller told IBD. “We think that people are willing to pay for the service.”

LifeLock has more than 2.6 million retail members, up 20% from a year ago. The basic plan costs $10 a month, or $110 for a full-year subscription. But about a third of new customers opt for the more robust protection and services plan at $25 a month.

In March 2012, LifeLock bought ID Analytics, jump-starting its enterprise business. It now helps about 250 companies — including cellphone providers and credit card issuers — analyze risks and make credit decisions about their customers. That unit generates less than 10% of sales but is growing rapidly.

In May the company launched LifeLock Junior, tailored to protect minors’ personal data. On the retail side, LifeLock thinks there are potentially 78 million customers in the U.S. — adults who say they’re worried about identity fraud, with household incomes greater than $50,000 a year.

It’s not clear how many of those will spring for an insurance policy against getting hit. But Richard Davis, an analyst with Canaccord Genuity, said the company doesn’t appear to be bumping up against customer resistance yet.  “The fact of the matter is, people are living more of their lives digitally. And at the same time there are more bad dudes out there who want to steal stuff,” Davis told IBD.

By virtually all accounts, fraud and ID theft are growing problems.

The government noted a surge this spring in fraudulent tax filings in an attempt to steal tax refunds. Consumers too are giving criminals a helping hand, increasingly sharing family details, pets’ names and other key tidbits openly on social-media pages. That provides a rich trove of data for cracking passwords and answering bank log-in security questions.  Users also routinely save passwords and other data on easily misplaced cellphones and tablets.

Brand-Awareness Leader

LifeLock spent almost $123 million to blitz the airwaves and otherwise promote its services last year, a 33% hike from the year before. Former New York City Mayor Rudy Giuliani is just one of its celebrity spokesmen.  That gives it a huge boost in brand awareness over rivals, including monitoring and fraud-protection services offered by Intersections (INTX) and the credit agency Experian (EXPN), analysts say.

But the publicity hasn’t always been good.

LifeLock’s CEO, Todd Davis, famously posted his Social Security number on billboards, online and in the company’s early television commercials, daring crooks to try to steal his identity. Several bandits apparently took him up on it, securing loans and racking up charges on phony accounts more than a dozen times by 2010, according to media reports.

One of the company’s founders, Robert Maynard, left the company in 2007 after allegations of a shady past surfaced in news reports. The company denied them.  And in 2010 the company agreed to pay $12 million to settle claims with the Federal Trade Commission and 35 states that its advertising falsely promised a 100% guarantee against ID theft.

LifeLock’s promotions now focus on the deterrent effect of its monitoring services and the remediation it provides if fraud does occur. It also monitors shady online bazaars where stolen Social Security numbers or credit card information is sold, looking for its customers’ data.

But its October IPO was a flop. Its 15.7 million shares priced at $9, under the projected range of $9.50 to $11.50. It tumbled more than 7% that first day, and didn’t close over that offering price until January.

Canaccord’s Davis thinks the rough debut was because analysts and institutional investors didn’t know whether to look at the stock as a consumer services company or a highflying software firm.  But strong earnings and growing secular tail winds seem to have convinced investors. Shares are up about 25% since its Q1 earnings report in May.

LifeLock posted a profit of 1 cent per share, topping forecasts for a penny-per-share loss. Revenue climbed 42% over the year-earlier quarter, to $82.1 million. LifeLock raised its June-quarter revenue guidance over analysts’ consensus target, but gave weaker EPS guidance, mainly on higher sales and marketing spending.

Analysts see that as a good trade-off because of the low churn rate and the steady long-term subscription revenue generated by each new customer. Its retention rate climbed to 87.2% in the first quarter, up from 84.3% a year ago.  And the monthly average revenue per customer climbed 11% in Q1 to $9.80.

“It says to us there’s some value delivered there and that consumers are willing to pay for that service,” Zeller said. “If this was something that was very low value-add, the word of mouth would have traveled quickly and the churn rate would have risen.”

The company hiked full-year EPS guidance to a range of 32 to 36 cents, with revenue in the range of $347 million to $355 million. Analysts lifted their expectations accordingly, now expecting EPS of 34 cents on revenue of $352 million.   Lifelock plans to report Q2 results July 31 after the market close.

Source:  Investor’s Business Daily Inc.