2023-06-01 07:08:16 ET
Summary
- Bumble's strong revenue performance, disciplined cost management, and net subscriber additions indicate a positive earnings growth trajectory.
- Successful global expansion and innovative features like Compliments have opened up new avenues for monetization.
- The current valuation presents an attractive entry point, trading at near all-time low multiples.
Overview
Nearly 6 months after I wrote about buying Bumble stock ( BMBL ), the business continues to do well, but the stock corrected down to $15. I still believe that the online dating scene will become increasingly popular as a result of the proliferation of dating apps and the normalization of online romance around the world. The FY23 year has started off well for BMBL, continuing the company's upward trend. First, the company's revenue performance was strong, and the adj EBITDA margins grew further as the company maintained its disciplined approach to cost management. Second, even though the growth rate slowed from the previous quarter, Bumble's net subscriber additions in Q1 still surpassed expectations. Most importantly, everything about the stellar performance went as expected. BMBL's global expansion has been fruitful, especially in Western Europe. Innovations have helped strengthen the brand and product, opening up new avenues for monetization. For instance, in 1Q, revenue growth was driven by the effective introduction of Compliments. I continue to believe BMBL is well positioned in this industry with more than a decade of experience to take advantage of this trend, and that eventually, the market will reward shareholders.
Performance outlook
Personally, I have not noticed any problems with BMBL's performance, and I believe the company is doing well and will continue to do so. In my opinion, the growth of online dating is not affected by the macroenvironment in the same way that other consumer spending products are. Some users may reduce their "swipes" if they have to pay, but I believe the vast majority can afford it and use the service because they need to find a romantic partner. In my opinion, this is what the BMBL results demonstrated. Strong international expansion, and the introduction of innovative new features all contributed to BMBL's net addition of 98k paying customers in the most recent quarter. The fact that the online dating market is robust despite the stigma's decline gives me hope that I'm right to think that this trend will continue. To restate my original point: without a thriving, socially-accepted market, it won't matter how innovative BMBL is; the company will fail. If Apple released the iPhone in the early 1900s, it would have failed because the necessary support systems (social acceptance in the case for BMBL) were not in place.
Innovation
A healthy market is important for BMBL to survive, but it is not enough for it to grow and win share given the low barriers to entry. As such, I am greatly amazed by the noticeable speed at which product innovation is taking place, exemplified by various new initiatives currently being tested, such as Best Bees and the enhanced receiver experience within Compliments. Additionally, there are plans to introduce a more affordable tier later this year. For Compliments, the global release has begun, and since management has mentioned launching a marketing campaign to expand Compliments' user base beyond its current payers, I believe there is a significant opportunity for increased adoption. The other highlight innovation, Best Bees, which uses AI to curate better potential matches, has grown faster than I expected and is now available in several major European markets. High adoption rates have been noted by management, and the firm is experimenting with both subscription and consumable types of monetization. In addition to these two major updates, BMBL is also piloting a new, cheaper tier aimed squarely at members of Generation Z. To me, these expansions are like buying consumable items in a video game. In my opinion, once you start buying something because you think it will help you "get ahead" or "gain an advantage," you won't be able to stop. And from a business perspective, each of these is an additional source of revenue with substantial margins. As such, I am very positive about management focusing on innovation.
Valuation
Given the correction in share price, I like to update my model to show the implied upside at $15.30. I think the valuation today presents a very attractive entry point relative to the last time I modelled the company. At 3x forward revenue, BMBL is trading at near its all-time low multiple, and is way below where it was last year. Granted that the rates environment and investors sentiment in the stock market are not as great anymore, it is fair that BMBL should not trade back to previous levels. In fact, I would go ahead and support that argument by saying that growth outlook now is also lower, as such multiples should be lower. The beauty is, we do not need BMBL to revert back to previous levels to make a good return. Using consensus figures, at 3x forward revenue, there is already a 40% upside. If multiples were to indeed turnaround, then it's even better. The question is if 3x is the right multiple? Or could it be lower. I think 3x sounds right if we compare it to Match ( MTCH ) which is trading at around 4x forward revenue. BMBL deserves to trade at a discount given its smaller size.
Author's valuation
Key risk
Bad reputation
A negative reputation can be a serious threat to an app's success. With so many potential entry points for criminals, this danger is inevitable in the online dating market. That's why BMBL needs to keep improving their security measures.
Conclusion
In conclusion, BMBL has continued to perform well despite a stock correction, and I maintain my belief in the growing popularity of the online dating scene. BMBL's strong revenue performance, disciplined cost management, and net subscriber additions have exceeded expectations, indicating a positive trajectory for the company. The successful global expansion, particularly in Western Europe, coupled with innovative features like Compliments, have opened up new avenues for monetization.. The valuation at the current share price presents an attractive entry point, trading at near all-time low multiples.
For further details see:
Bumble: Online Dating Industry Remains Strong