Shares of dating app Bumble (NASDAQ: BMBL) went public last February at a price of $43. BMBL stock is currently trading at $25.2 after touching a record high of $78.7. So, it's down over 40% from its IPO price and 68% from all-time highs. The company is valued at a market cap of $4.65 billion and let’s see if it commands a place in your portfolio right now.
The bull case for Bumble stock
The online dating segment has attracted several players making it an extremely competitive space. Bumble’s namesake app was launched in 2014 and it ended Q3 of 2021 with 1.5 million paying users. The company’s portfolio also includes Badoo, another dating platform popular in Europe and South America. Badoo has around 1.3 million users as of September 2021.
Bumble disallows men to initiate conversations putting women in control which prioritizes the latter’s safety. Its top competitor includes Match Group (NASDAQ: MTCH) which owns Tinder and several other dating platforms. Tinder is easily one of the largest players in this vertical with 10.4 million paying users.
Dating applications such as Bumble and Tinder generally benefit from a network effect. For example, people are interested in joining a community that has a huge base of highly engaged and active users.
Earlier this month, Bumble announced the acquisition of Fruitz one of the fastest-growing dating apps in Europe. Fruitz was launched in 2017 and is Bumble’s first-ever acquisition. Similar to Bumble and Badoo, Fruitz is also a freemium application and will be a key revenue driver for the company going forward.
In Q3 of 2021, Bumble reported sales of 24% year over year to $200.5 million. While the Bumble App sales rose by 39% to $142.5 million, revenue from Badoo App and Other segments declined by 3% to $58 million.
While Bumble’s total paying users stood at $2.9 million, average revenue per user rose to $22.97, up from $19.38 in the year-ago period. Its adjusted EBITDA stood at $54.5 million, indicating a margin of 27.2% compared to its year-ago margin of 33%, which indicates the company increased spending on customer acquisition.
The bear case for BMBL stock
One of the major risks for Bumble is the declining user baser of Badoo that fell by 9% year over year in Q3 of 2021. This business accounted for 29% of total revenue and it was impacted by the new COVID-19 variant.
While Bumble remains the key driver of top-line, its user base increased by 20% year over year in Q3. Comparatively, its user base grew by 44% in Q1 and 36% in Q2. On the other hand, Match Group accelerated user base growth in Q3 of 2021. Bumble is clearly an underdog compared to Tinder. But it should also be gaining paid users at an accelerated rate to successfully compete with Match.
At the end of Q3 of 2020, Bumble disclosed its monthly active users were around 42.1 million. However, the company stopped revealing its MAU numbers since it went public, making investors wary. It's now difficult to analyze Bumble’s overall growth, the ratio of free to paid users, and the ability to convert free users to paid ones.
The verdict
BMBL stock is forecast to increase revenue by 41.6% to $767 million in 2021 and by 23% to $944 million in 2022. So, BMBL stock is valued at a forward price to sales multiple of less than 5x which is quite reasonable for a growth stock. But the company remains vulnerable to macro-economic shocks such as new COVID-19 variants, rising inflation numbers, and the threat of interest rate hikes.
In case, market sentiment turns bearish, you can expect BMBL stock to trade significantly lower in 2022. Further, inflation has touched 40-year highs and might limit consumer spending, thereby impacting BMBL sales too.
However, Wall Street remains bullish on BMBL stock as its trading 105% below consensus estimates.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
