Bumble Stock: Reiterating Rating Before Q4 Earnings (NASDAQ:BMBL)

Reiterating Buy Rating

We initiated coverage on Bumble (NASDAQ:BMBL) on October 23, 2022 with a “BUY” rating. We cited strong growth trends in the key business segments, such as Bumble App, and in key metrics, such as number of paying users and revenue per user. Since our coverage, we have seen Bumble’s stock price rise 19.95% compared to S&P 500’s change of 9.42% in the same time frame. Our thesis has also been supported by the company’s strong Q3 earnings, and we believe that Q4 will continue to be strong despite the recent macroeconomic effects. We reiterate our rating before the Q4 earnings announcement in late February.

Quick Summary

Bumble reported very strong results in Q3 2022 in line with its Q2 2022 results. Bumble saw its total revenue grow 17% YoY, and has seen increased outperformance in its main line of business: the Bumble App. The app saw 28% YoY growth, and though this growth is a deceleration from the previous quarter, we believe that a 25% YoY growth in this economic environment is good to see. In addition the number of paying users for Bumble App has also grown by 36% YoY basis, from $1.5 million users to $2.1 million users. The ARPPU was flat on a YoY basis, but due to the strong top line growth, management also saw a robust 13% YoY robust growth. Overall, as long as Bumble App continues to grow at this pace, we believe the company’s financial prospects remain as bright as before.

Valuation

We stand by our previous valuation model, where we assume a CAGR revenue growth of 15% along with a 25% EBITDA margin. Our model predicts a $38.10 per share, a ~44% upside from current levels. We believe that the upside is still attractive at current risk-reward levels, and have the potential to appreciate more as valuation expands due to market conditions or better profitability metrics within the next three years. Once the Q4 financial results are released, we will update this valuation to account for the newer results.

Risks

The same risks remain today as identified during our initial coverage. There remains economic risks, related to a worse than anticipated recessions as a result of persistent inflation and elevated interest rates. However, as mentioned prior, we remain confident in Bumble primarily as a result of the resiliency of the dating marketplace industry. The shift in trend of using digital platforms for meeting other people, whether it be for relationships or mentorship, is undeniable, and the need to meet and socialize with others remain persistent even during times of recession. Furthermore, the revenue per user stands at around $23 per share, which to another degree means that it has minimal costs to users on the platform. As a result, we believe that Bumble will be able to navigate through economic uncertainties due to its industry and market position.

Final Takeaway

We remain bullish on Bumble due its continued strong performance in its financial results and key operating metrics. The Q3 earnings results and recent price action confirm our previous thesis, and we believe that the strong financial performance will persist into the announcement of Q4 earnings. We maintain our “BUY” rating on the stock, and will continue to monitor the situation after the Q4 earnings.