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Bumble Drops Below IPO Price

Bumble stock dipped 19% following the release of 3rd-quarter earnings.

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Nov 14, 2021
Summary
  • Bumble earnings disappointed investors last Thursday.
  • The competition in the online dating industry is increasing.
  • Bumble needs to develop long-lasting competitive advantages to become profitable in the long run.
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Bumble Inc. (

BMBL, Financial), the parent company of popular dating apps Bumble and Badoo, came under pressure last Thursday as the company’s recent earnings report disappointed investors because of lackluster paid subscriber additions. At the closing market price of $36.60 on Nov. 12, Bumble stock is now trading at a discount to its IPO price of $43 as well, which suggests the going has been difficult for the online dating company since its market debut last February. The company is likely to come under more pressure in the coming months before any improvements in the market sentiment.

Badoo fails to deliver

Badoo, which is a popular dating platform among the urban middle-class segment, saw its revenue decline 3% to $58 million in the third quarter, while its number of paid users dipped 9% year-over-year to 1.33 million. The average revenue per paid user nonetheless rose by 6%, but this improvement failed to mask the disappointing performance from other financial metrics. Badoo has a reputation as a leading dating app in many international markets, where the company experienced an issue that disabled payment processing in the third quarter, and this was one of the main reasons behind the lackluster performance of this segment.

In contrast to Badoo, revenue from the Bumble app came to $142 million for the quarter, an increase of 39% year-over-year. The total number of paid users and the average revenue per user increased by 5% and 19%, respectively. Although these numbers look promising, it is worth noting that the company reported a decline in paid users from the second to third quarters, which suggests the strong momentum behind the company’s online dating products is waning.

Earlier this year, Bumble partnered with Snap. Inc. (

SNAP, Financial) to integrate AR lenses directly into its video chats and messages, which was lauded as a promising tactical move to gain new users. But with Apple, Inc.’s (AAPL, Financial) recent iOS update that gives users the option of opting out of data tracking features, Bumble is struggling to gain new users through targeted advertisement campaigns directed toward increasing new user registrations. This headwind is likely to force Bumble to make substantial changes to its user acquisition model, and the short-term financial performance of the company might come under pressure in the next couple of quarters as a result of these expected changes.

Earnings recap

Bumble generated revenue of $200.5 million for the third quarter, up 24% compared to a year ago. The reported revenue was better than analyst expectations and the guidance issued by the management, but it was concerning to see that this revenue surprise was fueled by a 19% increase in average revenue per user, rather than an increase in the number of users. Bumble also reported a 46% increase in marketing spend for the quarter but still failed to gain traction among new users, which does not paint a rosy picture of what the future holds for the company. Renewed lockdowns and declining consumer spending on dating app subscriptions were the primary drivers behind this lackluster performance, and these macroeconomic challenges are likely to persist in the next few months as well.

Bumble reported a loss of $10.7 million, or 6 cents per share, for the third quarter, in comparison to a profit of $22.8 million for the third quarter of 2020. Adjusted Ebitda came ahead of analyst expectations at $54.5 million but the adjusted Ebitda margin declined from 33.1% to 27.2%, mainly due to the higher cost of revenue and elevated marketing expenses.

Increasing competition will be Bumble’s biggest challenge

Texas-based Bumble raised its full-year revenue and adjusted Ebitda guidance, and the company now expects fourth-quarter revenue in the range of $208 million to $211 million, above analyst estimates for $206 million. This boosted guidance confirms that the management is positive about the outlook for the online dating industry in the next quarter, which might be stemming from the expected relaxation of mobility restrictions on a global scale.

Competition is very stiff in the online dating industry, and Bumble will be subject to continuous comparisons with its number one competitor Match Group Inc. (

MTCH, Financial) whose larger userbase is growing at a faster rate than Bumble. Match Group’s total number of paying users, led by its frontrunner app Tinder, increased 16% year-over-year in the most recent quarter and the company reported an adjusted Ebitda margin of 36% for the third quarter, much higher than Bumble’s 27.2%. These numbers confirm that Bumble is playing catch-up already, and the massive scale of Match Group coupled with its diversified portfolio of dating products seems to be making life difficult for newcomers to the market including Bumble.

Takeaway

The global online dating industry is young, and there is room for Bumble to grow as the industry goes mainstream in populous regions such as Asia and Latin America. However, to survive and be profitable in the long run, Bumble needs to develop long-lasting competitive advantages, which is something the company is focused on. The next few quarters will be crucial in understanding the long-term potential of Bumble as investors will be able to evaluate the effectiveness of the company’s business strategy to tackle the challenges that might arise from the reopening of the global economy.

Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The views of this author are solely their own opinion and are not endorsed or guaranteed by GuruFocus.com
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