2023-10-09 14:24:25 ET
Summary
- Bumble Inc. stock has experienced a 40% decline in 2023, raising concerns, but a closer look at its fundamentals reveals a compelling investment opportunity.
- Valued at approximately 8x EBITDA for 2023, Bumble's current multiple appears undervalued given its growth trajectory and profitability profile.
- Bumble plans to test new subscription tiers, targeting Gen Z users and those seeking premium dating experiences, indicating a commitment to growth.
Investment Thesis
Bumble Inc. ( BMBL ) is a dating and social networking app that empowers women by allowing them to make the first move in conversations and prioritizes safety through moderation, making it unique in promoting healthy and equitable relationships.
Looking only at its share price, you'd be forgiven for assuming that there's something wrong with this business.
Bumble's stock is down 40% in 2023. That's a substantial price cut relative to what investors were paying at the start of the year. Even though, as you'll soon see, its fundamentals and narrative are not only congruent with each other but remarkably attractive.
Bumble's Near-Term Prospects
Bumble is a unique social networking and dating app that empowers women to initiate conversations, prioritizes safety with machine learning monitoring, and offers premium features in an effort to distinguish itself in the online dating and social networking landscape.
Bumble's near-term prospects are promising as it continues to build upon its unique approach to online connections. For example, Bumble aims to address the rising issue of loneliness globally and believes there is ample room for its apps to make a significant impact on people's lives. They are also investing in product development and innovation to improve the user experience and introduce new features like Compliment and Best Bees. Additionally, Bumble plans to test new subscription tiers to cater to Gen Z users and those looking for more curated and premium dating experiences.
However, Bumble also faces challenges as the competitive landscape in the dating app industry remains fierce, with numerous players vying for market share. Bumble will need to continue differentiating itself and adapting to changing user preferences and expectations. Additionally, as they expand into new markets and offer more features, they must manage expenses carefully to ensure sustained profitability. They are also working on building an ecosystem of connections beyond traditional dating.
With this background in mind, let's appraise its financials.
Revenue Growth Rates Remain Strong
For the moment, let's ignore Bumble's share price. Let's just focus on its fundamentals. As you can see above, despite starting 2023 on a less-than-strong footing, Bumble's growth rates into the back end of 2023 point towards a company that is succeeding in growing its revenues at close to 20% CAGR.
What's more, as we'll soon discuss, Bumble is succeeding with its growth prospects without having to sacrifice its profitability.
Profitability Profile in Focus, Priced at 8x EBITDA 2023
Since the start of 2023, Bumble has maintained that 2023 would see at least 100 basis points of EBITDA margin expansion. This would see Bumble's EBITDA reaching around 26% of total revenues.
Accordingly, this implies that Bumble is priced at about 8x this year's EBITDA. Although Bumble does carry some debt, at around $240 million of net debt, given that this business is clearly able to report such high EBITDA figures, I don't believe its balance sheet restricts its growth ambitions.
Indeed, if Bumble wished it could pay off nearly all its debt within 12 to 18 months.
So is Bumble's valuation justified? I don't believe there are enough reasons for its multiple to have compressed so much. Yes, investors are troubled by some macro conditions, including higher interest rates, but for all intents and purposes, Bumble continues to deliver attractive growth and increasing profitability.
This is not commensurate with its multiple being cut in half in the past 12 months.
The Bottom Line
In conclusion, Bumble presents an intriguing investment opportunity, especially when you look beyond its recent share price performance . Despite a 40% decline in stock price in 2023, the company's fundamentals and narrative are remarkably appealing.
Furthermore, its near-term prospects are promising, with a commitment to addressing the global issue of loneliness, plus through its continuous innovation in product offerings. As Bumble expands into new markets and tests new subscription tiers, it aims to cater to a broader range of users and monetize effectively.
From a valuation perspective, Bumble's current stock price seems unduly discounted. With strong revenue growth rates of close to 20% CAGR and a clear path to improved profitability, Bumble's valuation at 8x EBITDA for 2023 appears to be unjustifiably low.
Despite some macroeconomic concerns, Bumble's consistent growth and profitability trends make it an attractive investment opportunity that doesn't align with the recent share price decline.
For further details see:
Bumble: Why Its Stock Price Doesn't Reflect Its Fundamentals