2023-03-10 11:17:45 ET
Summary
- Bumble completed a secondary share offering of $13.75Mn shares from its largest investor, Blackstone and company founder at $22.80 per share.
- Bumble is not diluting its shareholders, there are no new shares issued by the company, nor are the proceeds going to it - they are going directly to the sellers.
- Bumble's stock price has tumbled 20% since the announcement and presented a great buying opportunity.
- Bumble's 4th quarter and 2022 results were excellent and guidance was great. It has an enormously bright future and runway to grow.
- "Women First" is a huge moat for Bumble and I'm upgrading my Buy recommendation to Strong Buy.
Irrational Drop Presents an Opportunity
On March 3nd, 2023 Bumble ( BMBL ) announced a secondary share offe ring of 13.75Mn shares, plus an optional 2.06Mn shares by its largest investor Blackstone's affiliates and founder Whitney Heard at $22.80 per share. Of these, Heard's share is 1.75Mn shares and after the sale, her holding reduces from about 13.5% to 12.2% and Blackstone's (along with its affiliates) from about 39% to 30%.
Most importantly, there is no dilution to Bumble's shareholders, no new shares issued nor any of the proceeds go to Bumble. I can't emphasize this enough. This was a shelf offering from the time of its IPO and it is from existing shareholders to new shareholders. The markets have completely overreacted, pummeling the stock down by 20% to $19.50 today from $24.50 on March 2nd.
I had recommended Bumble as a Buy on Feb 11th, 2023 for the following reasons, summarized below:
- Founder running the company and creating a new category - Whitney Heard, also co-founded Tinder, and started this passion project creating an entirely new category - Women First, which is a now a huge moat.
- Duopoly - The smaller part of the dating apps duopoly with Match ( MTCH ), with about 26% market share compared to Match's 65%.
- Wider Audience - Bumble is not restricted to a niche / relationships category like Hinge, it has a lot of striking and swiping similarities with Tinder and appeals to the same demographic.
- Highest ARPPU in the industry - $29 per month V $23.6 for Hinge
- Attractive Valuation - Just got even more attractive! Bumble's P/S ratio is only 2.8X sales, which should grow at a CAGR of 21% over the next 4 years, almost double Match's growth rates.
All these reasons continue to be valid and even more so at a discounted price.
Fourth Quarter and 2022 Analysis - Beating Estimates
Bumble had an excellent 4th quarter, increasing revenues 17% overall with a 28% revenue increase from its Bumble App, which were slightly better than my and analysts estimates.
Bumble's 4th Quarter had an excellent finish for the year with total revenue of $242 million and adjusted EBITDA of $60 million, both exceeding their previous outlook.
For the full year, the number of Bumble App paying users grew by 34% to faster than my estimates of 33% and its ARPPU ended the year at $28.90 in line with my estimates. Revenues of $904Mn were slightly higher than my estimate of $898Mn.
2023 Estimates
During its earnings call, management guided for the full year as under
- Total revenue year over year growth in the range of 16% to 19%.
- Bumble App year over year revenue growth in the range of 22% to 25%.
- Adjusted EBITDA margin growth of approximately 100 basis points.
This was actually better than my earlier, conservative estimate of 16% growth given a tougher market amidst inflationary conditions; accordingly I've revised my forecast upwards to a midpoint revenue growth of 17.5%
Bumble's Growth Catalysts - Optimizing under the hood
Bumble's biggest strength and moat is the creation of a new category by itself - Women First , with the focus being on safety and revolving on the dating needs of women. The moat is the scale and the resulting network affect. Simply, men will go where the women are...
Having done that, their strategy to continue growing in established and new markets is product optimization or optimizing under the hood and clearly with inflation and tougher conditions they are beefing up their game. Inflation in 2022 had definitely scrimped budgets as we saw in the lower ARPPU of $28.90, which had declined from a high of over $30 in 2020-2021.
The Compliments feature , which was added in 2022 should be accretive to revenues in 2023. This is a pre-match opportunity, which should see usage from both new and existing users. It's an ice breaker and usually results in complements being returned. Bumble has seen strong initial user response in markets where they have launched, with a 70% higher likelihood of resulting in a match than a typical test mode.
Best Bee - Bumble plans to start the Best Bee in Q2-2023, which will be a paid curated experience, focusing on finding highly compatible people and importantly, driving higher ARPPU. Another way of trying to make this a stickier platform and grow revenue from existing users.
BFF - Best Friends Forever is a new category on the Bumble app, where Bumble has the first mover advantage over other dating platforms. This has a lot of potential for monetization and can widen the scope of online dating platforms till it becomes a must have. This is the result of the product Halo and the network effect, besides fulfilling a basic need of loneliness. I am very confident about this category and surprised that no one else scaled it earlier.
From Bumble's 4th quarter, 2022 conference call
Now turning to Bumble BFF. We remain the only scale dating app to have a successful friend finding offering due to our strong and unique brands.
We believe the market opportunity around online friendship is sizable given the prevalence of loneliness with the U.S. Surgeon General sharing a 2018 to 2020 survey that revealed 60% of Americans struggle with loneliness. That figure climbs to 75% among younger people.
To reflect this significant opportunity, we're increasingly managing Bumble BFF as a separate brand. We continue to be excited by the user traction on BFF, with now growth of 26% year-over-year in Q4, alongside strong global appeal.
Focusing on GenZ - Bumble is bundling GenZ offerings at a lower price point to expand new users, since this a category that is not spending quite as much as the older generation. Match is doing the same and spending a fair amount to do so, but here again, Bumble will be very strategic and stick to their knitting, selling the platform as a safety first platform, letting women be in charge. Bumble also plans to start virtual gifts based on their research, which indicated that virtual gifts lead to almost 20% higher reciprocation rates, especially with Gen Z. Management reported that Bumble App's Net Promoter Scores in the U.S. during the fourth quarter led other online dating apps in two categories, women and Gen Z.
Growth in New Markets - With Germany leading the charge, it is now on track to be their third largest revenue market in 2023, after only two years of launching. Additionally, as of Valentine's Day, Bumble App was the most downloaded dating app in their top markets, including the U.S., Canada, Australia, the U.K. and Germany.
Investment Case
Men will follow where the women are - Ironically, one of the key USP's of Bumble, exclusivity - letting women make the first move, is ultimately driving demand. Men are flocking to where the women are, further galvanizing the flywheel. Bumble is doubling down on that exclusivity. Women in a safe controlling environment is their moat.
Focused Strategy - I admire the company, because their strategy is very cohesive and focused on improving and optimizing the dating experience, and they're applying the same play, whether it is for new features, newer geographies and or newer generations. They don't want to just widen the field without the experience.
Sticky and Loyal Users - One of the insights I had realized from my earlier article was that non paying users converted to paying users at Bumble at a much lower rate than Tinder; it's designed that way, with women making the first move. But paying users are paying twice as much as Tinder. Bumble is not letting the user out of its orbit.
Take full advantage of the price drop - I've doubled down on my investment; this price drop of 20% because of promoters reducing a small part of their holdings is an opportunity. With my forecasted sales growth of 21% over the next 4 years, I thought it was a bargain at a P/S of 3.6 and now with a P/S ratio of 2.8 it is an even bigger bargain! Furthermore, Bumble did well growing revenues 18% in a difficult 2022, when inflation scrimped budgets. In an equally challenging 2023, it has guided to 16-19% revenue growth and improved Adjusted EBITDA by a percent to 26%, which means reigning in spending, even with growing geographies and building new features. That's not a small achievement by any means.
I'm upgrading my recommendation from a Buy to a Strong buy.
For further details see:
Bumble: A Great Opportunity To Buy The 20% Tumble