2023-08-18 09:13:24 ET
Summary
- BMBL's 2Q23 performance exceeded guidance, with revenue and adj EBITDA margins surpassing expectations.
- BMBL's strategic expansion into adjacent verticals, such as Bumble for Friends and the acquisition of Official, demonstrates a broader growth strategy beyond dating.
- Management's plans to introduce new, cheaper, and more expensive subscription tiers could lead to increased monetization.
Summary
Following my coverage of Bumble ( BMBL ), I recommended a buy rating due to my belief that BMBL is well positioned in this industry with more than a decade of experience to take advantage of the online dating trend. This post is to provide an update on my thoughts on the business and stock. I reiterate my buy rating for BMBL, as I remain positive on both the short- and medium-term outlook for the business.
Investment Thesis
BMBL's performance in 2Q23 was above guidance, with revenue exceeding the high end of the guidance range and adj EBITDA margins expanding sequentially thanks to the company's dedication to maintaining cost discipline. For reference, BMBL brought in $260 million in revenue and had an adj EBITDA of $67 million in 2Q23. Revenue from the Bumble App was $208 million, which was also at the upper end of management's $205-208 million guidance. This was largely due to net adds of 139k, which represented a meaningful acceleration compared to the 98k adds in 1Q23. Not only that, but 2Q23 marked the first annual quarter of growth for Badoo & Other revenue at $52M since 2 years ago.
I still believe there is significant opportunity for BMBL to grow over the medium term and that the company is in a distinct competitive position within the online dating industry, and increasing exposure to adjacent verticals. Bumble for Friends and BMBL's recent purchase of Official are the best examples of this strategy of expanding to adjacent verticals. In my opinion, this broadens the scope of opportunities for BMBL, allowing it to build a community that encompasses social activities like dating and making new friends. In other words, I believe BMBL's TAM will significantly expand if it manages to execute this diversification successfully.
A key part of our broader growth strategy is to strengthen the ecosystem of connections, whether it's new relationships, established couples, or friendships. Part of my original vision for Bumble has always been building relationships beyond dating. (2Q23 earnings results call)
I also have a positive outlook for the near future. Management is thinking about introducing new, cheaper, and more expensive subscription tiers. For readers that do not know, there are currently two Bumble app tiers: Boost and Premium , with most of them in the higher tier, according to management. Since the price of this entry-level tier will be more "reasonable" for some types of less heavy users (in comparison to Bumble Premium), I anticipate an increase in the monetization rate. When it comes to the higher subscription tier, management is positive that existing premium users are willing to pay for it. In my opinion, this is likely to be a net positive for BMBL, as I am sure there is a group of users that are more serious about dating, and users that are paying much more are likely to be like-minded (serious about dating). Therefore, BMBL will be able to increase monetization while improving the user experience.
We are continuing to test a base subscription tier to create a differentiated experience and more affordable offering that will appeal to Gen Z members.
Based on our high-quality user base, we have conviction that there is also demand for a higher price product above Bumble Premium. We believe this higher tier will appeal and provide value to existing Bumble members with more serious dating intent. We expect this will also resonate with singles who are not currently using dating apps because they desire more curated experiences. (2Q23 earnings results call)
Overall, I believe the near-term outlook (FY23) should be relatively safe as management narrowed its 2023 revenue outlook to 17-19% growth vs. the prior 16-19%.
Valuation
Own calculation
I believe the fair value for BMBL based on my model is $21.51. My model assumptions are that BMBL will grow in the high teens in the near term, supported by the continuous growth in users and increased monetization rate as BMBL launches different subscription tiers. The 18% figure is based on management's FY23 guidance. BMBL's main competitor is Tinder ( MTCH ), which is trading at 4x forward revenue today. While BMBL is growing faster, its profitability is a lot worse than MTCH today; hence, I expect it to continue trading at a discount until it shows the market that it can grow while increasing profitability as well.
Risk
I reiterate that my key risk for BMBL is the relatively cheap switching cost between different dating apps. The positive experience of one user might not be the same for the other, especially in the case of dating (where it takes two hands to clap). This would also limit how much BMBL can continuously raise prices.
Conclusion
I remain positive on BMBL's short- and medium-term prospects. BMBL's robust 2Q23 performance, surpassing revenue projections and fostering cost discipline, supports this outlook. The strategic expansion into adjacent verticals and the introduction of diverse subscription tiers highlight the company's adaptability and growth potential.
For further details see:
Bumble: Positive On Both Short And Medium-Term Outlook