Bumble Stock: Ready To Rumble (NASDAQ:BMBL)

Bumble can rumble abroad

Tinder, owned by Match (MTCH), the world’s most popular app has 75 Million Monthly Users, but only 7.8 Mn of them are in the United States. That means almost 90% are outside the US.

Bumble (NASDAQ:BMBL), on the other hand, has been much slower in penetrating the global market, which also means that there is a huge opportunity to grow abroad – a vast under penetrated market for their dating category of “Women First”. The MeToo revolution, the evolution in perception worldwide towards women, and the importance of safety on online dating platforms, all give Bumble a boost in the online dating market.

Bumble’s international expansion and success is an important factor of my investment recommendation. Almost 90% of Tinder’s payers are from outside, and Bumble still has a long way to go with less than 50% of payers outside North America.

Bumble spoke about international expansion on their Q3-2022 Earnings Call (Bold emphasis mine)

In the third quarter, we delivered solid top line growth of 17% year-over-year, driven by 28% growth for Bumble App. Adjusted for both FX and the Ukraine complex, Bumble Inc. revenue growth would have been 10 points higher and Bumble App revenue growth would have been 5 points higher.

International expansion continues to be a critical growth driver for bundle app. In Western Europe, we saw robust user growth and even faster revenue growth. We remained the number 2 dating app in Germany, closing the gap significantly with the number 1 player and we gained a download share in Austria. Fran, Switzerland, Belgium and the Netherlands. Spain is our most recent launch in the region and we have seen significant growth in registrations, MAU and revenue since early July.

Our Latin America and Asia expansion are performing well. India remains a notable highlight and revenue in India more than doubled year-over-year, again, demonstrating the broad global appeal of our brand and product. Between now and the end of 2023, we will build on our proven playbook to continue to actively expand internationally. We expect to complete our major launches in Europe and critically to continue to deepen our presence in each of our recently launched markets. In addition, we expect to continue our rollout in Asia and Latin America.

Bumble gets the highest ARPPU compared to Tinder and Hinge

Bumble’s paying users compared to Tinder and Hinge

Bumble App garnered an estimated $29 per month from paying users, compared to $13.7 for Tinder and $23.6 for Hinge. It makes more than 100% as compared to Tinder and 23% more compared to Hinge. This is Bumble’s main strength, because they can make the same amount of money with less than half of paid users as compared to Tinder. Unlike Hinge, Bumble also goes after the same demographic as Tinder – it doesn’t corner itself into only serious relationships, as you can see by the large number of MAU’s of 58.5 Mn compared to 24 Mn for Hinge. However, with conditions such as Serious Relations for Hinge and Women First for Bumble, both Hinge and Bumble have much lower conversion rates for paying users – Hinge is only 4.2%, while Bumble is even lower at 3.5% as compared to 15% for Match.

Bumble can’t compete on converting users to paid users simply because of the App’s characteristics – Women have to take the initiative for the relationship to progress, and women look at profiles more closely than men. This naturally will reduce engagement, unlike Tinder, which is a more of a free for all melee. That is a challenge, because now Bumble is working five times as hard to get a paid user.

Bumble’s revenue and earnings growth

Growth is going to be so much slower than what Bumble witnessed during the pandemic and pre pandemic years.

Based on my estimates, Badoo and other Apps lost 16% of paying subscribers in 2022; Badoo users are more susceptible to macroeconomic weakness, to which Europe (Badoo’s stronghold) was no stranger. Bumble has targeted and focused on mitigating this weakness and has seen sequential improvements in Q3. I don’t expect any improvements for Badoo in 2023, and I am modeling for a 2% revenue decline with modest growth of 4% from 2024.

Bumble – The key to Bumble’s success has been strong ARPPU growth and most of management’s focus has been more on wringing more out of its paying users; while ARPPU (Average Revenue Per Paying User) did grow 10% from 2019 to 2022, it was essentially flat in 2022. Revenue growth came strongly on increases in paying users. I believe both will face headwinds in 2023. Because, a) Most of the expansion will be abroad, which as Match’s 2022 results showed us, it had about 10% lower ARPPUs b) I am modeling a more modest 22% paying user growth based on lower conversion rates and a weakening global economy, which will take its toll on discretionary incomes.

Based on my estimates of ARPPUs and user growth, I’m modeling for a modest 16% revenue growth for 2023, with Bumble of course doing all the heavy lifting at 20.5%. I expect 2024-2026 to be much better at about 26% as Bumble starts making serious inroads in Asia and consolidating in Europe. (it’ll likely be higher on constant currency). This is still much lower than the heady growth we saw in 2020-2022, which is a very high base to surmount, and a lot of demand was pulled forward because of Covid. Also, rampant growth is not an objective of management and clearly Bumble will only focus on strategic geographies that can carry higher ARPPUs.

The bull case and valuation

Founder running the company – I take a lot of comfort that Whitney Wolfe Herd, Bumble’s founder, is closely involved with running the company. She started Bumble as a passion project to focus on women initiating dating relationships — that is a huge plus. Herd, earlier co-founded Tinder and, has the experience and pedigree in rolling Bumble out all over the world. Plus, Bumble is backed by Blackstone with deep pockets.

Wider Audience – Bumble is not restricted to a niche / category like Hinge, it has a lot of striking and swiping similarities with Tinder and appeals to the same younger demographic. It retains the usage ease and familiarity of Tinder.

Duopoly – It has all the advantages of a consolidated industry, having the second-largest market share. Match and Bumble with all their apps control 91% of the North American online dating industry. The advantages of a duopoly are significant:

• It creates significant barriers to entry and scale.
• Pricing Power.
• Entrants have to struggle with cash burn and losses for several years.
• The network effect.
• New entrants spring up in smaller niche categories and provide growth for consolidated players as they get folded in to the big tent, giving the bigger company even more leverage and scale.

Creating a new category – Most of the successes in the dating industry are because of new categories and genres being created. Tinder – Casual, Hinge – Relationships, and Bumble – Feminist or women first, are three examples. And all three have come from individual founders who hatched great ideas and not from corporate strategy. Two of them were founded by Whitney Wolf Herd. Creating a new genre means being the largest or the only player in that category – the first mover advantage lasts a decade.

Profitable – Management has also promised cost discipline with an increase of 100 basis points in operating margins next year. There is virtually no long term debt like Match and the organization is much leaner – there are only two large segments to focus on.

Attractive Valuation – Bumble’s valuation is very attractive for longer term investors, based on a four year, 21% revenue CAGR (much lower than the last 3 years), Bumble P/S comes down from the current 3.6 to 1.65 in 2026. Similarly, Earnings comes down to a PE of 18.3 compared to 62.5 today, the PEG (Price Earnings to Growth drops to 0.96).

It also stacks well against its much bigger and slower rival, Match.

Bumble’s 2026 P/E based on a faster earnings growth of 36% works out to 18, just a shade higher as compared to Match’s 16. On a 2026 P/S basis, Bumble scores significantly better at only 1.65 compared to Match’s 2.8.

I recommend Bumble as a Buy and plan to start accumulating between $22 and $25.