Bumble, Match, and the Future of Online Dating | #tinder | #pof

In this episode of Industry Focus: Wildcard, host Nick Sciple is joined by Motley Fool analysts Meilin Quinn and Luis Sanchez to discuss the online dating trend and two of its biggest players: Bumble (NASDAQ:BMBL) and Match Group (NASDAQ:MTCH). Find out what differentiates them and which one is best suited for growth and innovation in the future.

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This video was recorded on Feb. 17, 2021.

Nick Sciple: Welcome to Industry Focus. I’m Nick Sciple. Online dating is taking over the world. Even before the pandemic, online dating was already the primary way many folks were meeting new potential partners. With traditional dating canceled in 2020, it’s only grown in relevance. This week, I’m excited to welcome Meilin Quin and Luis Sanchez on the podcast to discuss this online dating trend and the state of the industry after Bumble’s recent IPO and Match’s record acquisition of Hyperconnect. Meilin and Luis, thank you all for joining me.

Meilin Quinn: Thank you so much, Nick.

Luis Sanchez: Thanks for having me, Nick.

Sciple: Yeah. Great to have you back on Luis, Meilin, great to have you on the podcast for the first time. Before we dive into this topic, for folks who haven’t met you before, can you tell us about what you do at The Fool, what you cover and what brought you to The Fool?

Quinn: Absolutely. So I’ve recently joined the analysts team as part of the investment in development program. I actually studied journalism and economics at school. I first came to the Fool as an intern this past summer. I was helping out with booking guests from Motley Fool Live and designing graphics for Instagram. I’ve been a long time investor and this is my dream. I’m so excited to be learning more about how to invest wisely and to be joining the team full-time.

Sciple: Awesome. Great to have you on and excited to have you on to help us talk about online dating today. Before we dive into Match and Bumble, and all the exciting things that are going on with these companies, I just want to talk about this trend broadly. When you look at online dating, I think the numbers are two-thirds to three-quarters of new couples being formed today meeting online. If you look at some of these statistics, when you just look around, do you have any friends that just aren’t on a dating app today? If you’re single and you’re available, you kind of have to be, right?

Quinn: I’d say so. Most of my friends are on these apps, and it seems like whether we like it or not, online dating is the future. You mentioned the Tyro Partners paper before we started, that indicates that almost 75% of new couples have met online. Pretty outstanding numbers there.

Sanchez: Yeah, I would agree with that. One of the things I really loved about that Tyro Partners paper is they pointed out something that’s obvious in hindsight, which is that, if you look at the academic research or the survey data, they say maybe closer to 40% or 50% of new couples meet online. But there’s probably a lot of under reporting because people don’t like to talk about their use of dating apps. The market may be even bigger than what a lot of people would guess based on just traditional survey work.

Sciple: Yeah, sure. I think from my perspective, if you talk to any of my friends, it seems like everybody is on dating apps. I mentioned off the top with 2020, the pandemic, everybody being locked at home, you’ve seen downloads move up in a meaningful way. Particularly at the start of the pandemic, you’ve seen average ages of folks downloading the platform move lower. That makes a lot of sense. If you’re in college, normally you’d be going into the parties and things like that, meeting people, all that’s canceled. If you want to be dating as a young person, you have to be on these apps. There’s also some benefits in some communities. Homosexual communities in particular were very early adopters of online dating because it offered them some more safety to meet folks and things like that. There has been some growth in those communities as well. Then overseas in markets where women have less sexual autonomy, you see some benefits from online dating as well. It’s grown the pool, been more convenient for folks, but also empowering for some groups that haven’t traditionally had the same access, the same autonomy in dating as the majority of folks.

Sanchez: Yeah. This is another area where this was one of these long-term offline to online transitions that has probably been accelerated by COVID, all things being equal. There’s a lot of interesting demographic tailwinds. People are getting married at an older age. Devices are more ubiquitous. You could pretty much pick up Tinder when you’re just sitting around at a bar, really anywhere. The friction has really been reduced, which has also helped grow the popularity of these services.

Sciple: There’s this network effect as well. The more people that are on the platform, and the more you have to be on there, etc., and the more opportunity as well. I think one thing that’s important to point out before we hop into the discussion on Bumble and Match is the difference in gender dynamics and how folks use the platform. I think that’s really important to call out. I can take that one, yeah. If you look, men on the platform, obviously as you would expect, much higher usage of the platform, use it much more intensely or more inclined to use it for maybe casual uses or things like that. But women really drive the bus on online dating. Men go there to find women. Women accumulate matches much more easily than men and do so much faster. Women don’t have to spend as much time on the platform. Big takeaway for these companies, which we’ll talk about in a minute is, because women match so much more effectively, women aren’t paying money at the same rate to get additional matches on the platform. When you talk about Bumble and Match that we’re going to talk about in a few minutes, the main drivers of purchasing behaviors, the folks who are paying to get extra matches are men. But what really matters, the population that’s important is men aren’t going to go to any platform that doesn’t have women on there. I think that is maybe a decent transition to talking about what’s going on in the news now.

Bumble came public last week. It’s now the second maybe primary way you can invest. In online dating Match has been public for a number of years, has been a juggernaut in the space. Now Bumble, coming public as a challenger last week began trading last Thursday on the Nasdaq, closed up 63% on its first day of trading, and has a $9 billion market cap the last I looked at it this morning. What investors need to know about Bumble, we talk about these different gender dynamics, and Bumble really calls out this, women-make-the-first-move dynamic. Meilin, where does the Bumble products stand out for you among this sea of dating apps?

Quinn: Yeah, absolutely. I think the general impression of Bumble is that it’s for sparking more meaningful relationships opposed to Tinder, where folks go for flings and more for the fun, unexpected conversations. I think Bumble’s viewed this way because women, as you mentioned, have to message first, and you have to put in extra effort in this app. Extra effort for men to stand out to women, and extra effort for women to initiate these conversations. My initial thoughts are, maybe girls don’t always want to message first, for the lazy and shy girls. I can’t help but feel that for heterosexual relationships, it would seem like you’d have to be a real standout guy to get meaningful interactions and to find success on Bumble, where the woman has to put in the initial work, especially when you think of data that suggests women judge men more harsh with on dating apps. That’s my first instinct that this would be tough on dudes, but perhaps that’s what gets guys to pay up for these extra features. There could be something too. I’m interested in seeing what kind of path to profitability emerges for Bumble. As you mentioned, it’s really up to women at the end of the day, it seems like the most successful app will be the one that can retain most women swiping.

One thing I love about Bumble is its BFF and networking section where you can make new friends or you can connect with other working professionals. It seems like women are interested in these sections, at least more so than men, to find brunch and shopping buddies on Bumble BFF. With that, Bumble found a great way to attract more women and become an all-in-one for women wanting to expand their career, social, and romantic lives. I certainly get Bumble’s strategy and advantage there, it has a network effect. I’m interested in hearing your thoughts, Luis. I know you looked into Bumble’s financials and IPO prospectus. What do you think it’s prospects are as a company?

Sanchez: Absolutely. I was looking through the S-1 when the company IPO’d, and they’ve really driven home their cultural perspective of being a woman-first company. It’s pretty much throughout the DNA. The founder of the company, actually, her name is Whitney, sorry.

Sciple: Whitney Wolfe Herd.

Sanchez: Whitney Wolfe Herd. I keep mumbling her name. She was actually an early employee at Tinder, which is owned by Match, and she had some really great firsthand experience getting Tinder off the ground. She left in 2014 to immediately found Bumble and she runs the company today. She’s really built the company in this image. Most of her management team are composed of females. Three quarters of her board is composed of females. Driven by this women-make-the-first-move product, it’s really led to this phenomenon where relative to other dating apps, Bumble has more women compared to other products, and they claim that women actually monetize at higher rates. Those are some really interesting characteristics that make Bumble stand out. I think what I really came to is, when it first launched, they had to have a reason why people would use this, so they had a point of product differentiation. But I think several years into their journey as a company, they’ve really cultivated a brand around it and it’s really a lot more than just the app works differently. I really feel like they actually have developed a real brand that they can build a bigger business around.

Sciple: Yeah. It has a clear use case and where it fits into the market. The other thing that I think is interesting about Whitney Wolfe Herd, 31 years old, youngest female founder to take a company public. You talk about the demographics in this space, I would say that the further you get from 30, probably the last insights you may have to your core customer of what’s going on here. I think it’s exciting to have a young founder leading this company. Any thoughts? Meilin, when you look at Whitney Wolfe Herd, her role in this business, she controls 14% of the voting stake.

Quinn: Yeah, absolutely. We haven’t spoken about Match just yet, but I feel that leadership is maybe one of the areas Match is lacking in comparison to Bumble. Match is not founder-led, unlike Bumble. Whitney Wolfe Herd, she actually left Tinder over frustrations about sexual harassment. She actually sued Tinder for this. I definitely see Bumble’s edge over that. Many of Bumble’s executives and board members are women, and they seem to take a much more forward approach to corporate governance and culture.

Sciple: Certainly, yeah. There’s been lots of attention back and forth between the Match Group and Bumble. You mentioned that sexual harassment lawsuit. They actually had a lawsuit over this summer where there had been some conflict. Match owns the patent to the swipe right mechanism and there had been some conflict between Bumble using that, but they settled that lawsuit. Then some other allegations around, Match had potentially wanted to acquire Bumble at one time. One other interesting factor, you talked about the founder-led nature of the business. I think from my perspective, as I said earlier, very exciting, particularly her youth I think is interesting because she knows these customers who are using the platform. On the other side of that though, this company is majority-controlled by the Blackstone Group, and so this is a private equity entity. You think about this idea that founder-led, that’s great, but also this faceless private equity group. Luis, thoughts on this tension between the founder-led nature of the business and then this banking financial entity that also is a controlling stakeholder?

Sanchez: It’s an interesting dynamic. I’d say it’s probably not an unusual dynamic in the broader scope of IPOs. I actually have a lot of comfort with Whitney Wolfe, she is in control. I feel like the company is, in a lot of sense, a mirror image of her philosophy on what she wanted to build. I do worry in one sense that because Blackstone does have such a larger ownership, they’re not going to maintain that larger ownership forever, so it could actually put an overhang on the stock. It just IPO’d and the stock has a lock-up, but at a certain point, they are going to be selling down their stake, which is certainly a consideration when looking at a new IPO like this.

Sciple: Certainly, yeah. This idea of that float opening up and there being some selling pressure on the stock. One thing we haven’t talked about that I think is worth mentioning is Bumble is the leading app of this company, dominant in North America, really driving significant portions of the revenue, which maybe we can talk about that. But there is this other part of the business, Badoo, which is more internationally focused, actually larger and it comes on a monthly active user basis. What should we know about where Badoo fits into the overall Bumble story, Luis?

Sanchez: Yes. As you mentioned, Badoo is more of a European and Latin America-focused dating app. It doesn’t really have much traction in the U.S. Surprisingly, we hear a lot about Bumble, obviously the company is named Bumble, but Badoo actually has more users than Bumble. In fact, Badoo had, according to the S-1 28 million monthly active users, whereas Bumble only had 12 million monthly active users, so more than double. Interestingly though, if you look at the underlying financials, Bumble users are actually monetized better. The Bumble app still represents a majority of the company’s revenue despite having less users. The Bumble user base and Bumble revenue base is growing 10 times the growth rate compared to the Badoo business. It’s interesting to see that dynamic, and if you have to take a look at the assets and you have to think about where the value is, it’s pretty clear that the real value in this business is Bumble and the future growth of Bumble. Although, Badoo is a nice balancing asset to have because it does give the company some exposure to international markets and potentially some other demographics that they’re not going to hit but Bumble. One of the interesting things going back to the story is actually that there is some synergy between the two apps. They do share some common back office, like overhead and technology expenses. In fact, I read that Bumble, in a lot of ways, it scaled off of that Badoo infrastructure. Having that Badoo asset definitely helped in contributing to Bumble’s very rapid rate of growth.

Sciple: Yeah, certainly. You talked about Bumble culturally. There’s a big focus on women, this big focus on safety. They call out a lot of safety features on the platform. Badoo has been around a lot longer, different founder, different history. Now that Badoo is under this umbrella with Bumble, there is some potential for Bumble to inculcate some of their culture into what’s going on at Badoo, bring it some of the safety features, things like that, and clean up what’s going on on that platform. So there is some room for expansion, but very much the story being driven by Bumble today. When you look at performance of the business, obviously there’s been this impact from the pandemic. What are we seeing as far as performance of the business over the past year or so during the pandemic?

Sanchez: Yeah, absolutely. From 2018-2019, the overall Bumble business grew about 35%. Digging into that a little bit, the Bumble app itself grew 70% and the Badoo app only grew 7%, so referencing how Bumble’s growing a lot faster than Badoo. But in 2020, the pandemic did not help online dating apps and revenue growth significantly slowed. We have the data for the first three quarters of 2020 and the overall revenue growth went down to about 15%, so it halved from 35% to 15%. Bumble slowed from a 70% growth rate in 2019 to a 25% growth rate for the first three months of 2020. Logically it makes sense. If people are being cautious around meeting new people, they’re going to probably be spending less time and less money on online dating apps. It does make sense that revenue growth slowed. In a sense, this could actually be an interesting reopening play as we look to what happens after the pandemic.

Sciple: Yeah. I think that’s one of the interesting dynamics of these online dating platforms. To your point, Luis, maybe there’s not an incentive to accelerate your rate of matches in a time where, listen, I’m not going to go meet anybody who I match with because it’s during a pandemic. But there is an incentive to have a presence on these online platforms, so maybe I will have a date whenever the world at some point returns to normal, whether that’s on Bumble or one of these other platforms, which I am sure we will talk about Match briefly. When you look at Bumble, one last thing I wanted to talk about on their S-1 before maybe we give some final thoughts and move on to Match is, anytime I look at any S-1 filing or any kind of prospectus from a company, it’s a practice thing, you Control F and you put in material weakness and see if anything pops up. We did see one pop on that in the Bumble S-1 saying there was a material weakness in their financial reporting. Any concerns around that language, Luis, as you peruse the S-1?

Sanchez: A material weakness refers to the internal accounting policies of a company. So, how accurate the reporting might be or how many checks they have on their numbers. This is an internal audit of a company’s ability to give confidence that all the numbers are right. Having a material weakness come up in the risk section is never a positive thing, but it doesn’t necessarily mean that there’s something wrong with the company. Certainly, a material weakness can mean that the company has a mistake and may need to restate its financials. But oftentimes, it just means that they need to upgrade their financial software or they had some turnover in their accounting department and they just need to reorganize their records or something like that. There’s actually an interesting study done by KPMG that found over the past four years, as much of a third of all U.S. based NYSE and Nasdaq IPOs have had or have disclosed material weakness, this issue is actually quite common. Actually, let me retract. Maybe sometimes it is a positive thing, because recently Roblox came out, they were going to IPO at the end of last year and it came up that they had an issue with their accounting. As it turns out, they need to adjust their revenue higher because of some squishiness they have in terms of how they estimated their deferred revenue. It’s usually not a good thing, but I guess sometimes it does lead to a revision higher. I would say it’s definitely something worth noting, and if you continue following the company, eventually they’ll let you know when they’ve resolved this issue.

Sciple: We’ll have to watch what happens with Bumble moving forward. Clearly, some concerns around slowing revenue growth in 2020, but they have a very strong brand. Lots of tailwinds behind them, as far as the strengths, we will see what happens. The thing, when you look at Bumble’s attractiveness and relative to this online dating space really begs the question of the alternatives. The big alternative out there is Match Group, that’s the big dog in the space, the top dog and first mover, to use the David Gardner Rule Breakers language. Meilin, I know you’ve done some work on Match Group, analyzing this company. Just high-level, can you compare and contrast Match Group from Bumble, the company which we’ve been talking about so far?

Quinn: Definitely, yeah. I’ve looked a little bit into Match Group, I’m a fan of the company. One thing that comes to mind, I am a recent college graduate, I remember being surprised that many of my peers were using the Hinge app. Hinge is owned by Match Group. Match Group owns Hinge, Tinder, PlentyOfFish, and a handful of other well-known dating apps. I was surprised that Hinge was gaining traction because it again seemed like so much effort. I’m pretty sure you have to answer certain prompts about yourself on your profile. In order to match with someone, you have to respond to one of the replies they give to one of those questions. [laughs] It seems like it’s something you can’t really be too lazy about unlike Tinder, but I noticed it’s gaining traction. If you look at Match Group’s quarterly numbers, Tinder has been growing its user account pretty rapidly and it actually just turned profitable in quarter two of 2020. So, being profitable for Hinge is at least one thing, Hinge has that, Bumble does not, although Hinge is a much smaller brand than Bumble. But I would say the biggest differentiator between the two stocks or two companies is just Match Group’s portfolio approach to dating apps.

Sciple: Yeah, just sheer scale. You look at Bumble’s market cap, I called it out a little bit earlier, about $9 billion. Compare that to Match Group in the $43-$45 billion range depending on where it’s trading today, there’s been some volatility in the market of Match Group. You mentioned Hinge as part of Match’s portfolio, they do have 14 properties. As you mentioned, Hinge is probably the most directly analogous as far as competing with the market that Bumble is going after, these more committed relationships, those sorts of things. Hinge’s tag line is the app that’s designed to be deleted, and there’s really been some exciting growth from that property to your point. I pulled some stats Hinge estimated to have tripled revenue in 2020, estimated to have grown its user base 20 times since Match acquired the company, it was something that was treading water before Match acquired them. But the story for Match, while we have seen a lot of positive growth and development in some of these non-Tinder properties, particularly Hinge, the story of the company is still driven in a very significant way by Tinder or Tinder has the highest grossing app on the App Store, has been for a very long time, drives 56% of revenue. Luis, when you talk about the importance of Tinder to Match as a business, is there a way to understate how much Tinder is driving the bus for this company today?

Sanchez: It’s the majority of the company’s revenue. [laughs] One app, so it’s a portfolio of assets like 14 apps, but this one app has just really taken off. However, in the past couple of quarters, we’ve actually seen the non-Tinder side of Match’s business grow faster than Tinder. That’s actually been a really interesting development that has caused people to realize that, “Hey, this company is more than just Tinder.” You have to think about how this company was formed. It goes all the way back to 1995 when it was just Match.com, and slowly they’ve added so many of these other apps. They’ve added OkCupid, PlentyOfFish, Tinder, Hinge. It’s really interesting to see that they could actually reaccelerate the growth of some of their older apps by taking some of their learnings from an app like Tinder and saying, “Hey, this monetization feature, people seem to really like it on Tinder. Let’s see if people like it on Match.” They started this new initiative during the pandemic to do more video, and they experimented with that and they found, “So people in OkCupid or PlentyOfFish really like video, I wonder what happens if we add video elements to Tinder.” Tinder really is a driver, but it is interesting how the company uses its different assets to collect data and to make the whole portfolio better.

Sciple: They have all these little incubators around these different assets that the company owns. That brings me to a topic we were discussing a little bit before we taped the show, this idea of Match, which has historically been a very acquisitive company. You can almost call it a roll-off in the online dating space, doubling up lots of different companies versus Bumble, which you could say it’s maybe innovating a little bit more. They were the first mover on Bumble’s Bee line product, it was actually something that Tinder imitated with Tinder Gold. Is that a fair distinction to think about Bumble as the innovator in the space and Match Group as the acquirer? Or are we just not giving Match Group enough fair credit for the work or the innovations that they’re doing?

Quinn: I think it’s clear that Match is making efforts to innovate. You mentioned, Luis, Match is reaching into live streaming through its PlentyOfFish platform, and they just acquired a company called Hyperconnect, and that offers some more live streaming video capabilities. I don’t know if I’d necessarily say that Bumble is more of an innovator than Match Group.

Sanchez: I think it’s really hard to say because they’re all copying from each other and running their different experiments. I think the Hyperconnect acquisition is really interesting because they’re acquiring really popular apps in Asia where they might do things a little bit differently. Hyperconnect isn’t as much a dating app as it is just like a live streaming and social app, but there’s definitely some interesting things you could learn about the way that they use their apps in Asia and the way that even companies like TikTok operate, like the algorithms. There’s so much happening that you could just look across different types of apps. Another thing that’s really interesting about Match is that it used to be part of IAC, and it was spun-off partially in 2015, and the last 80% of the company was spun off last year. It’s interesting. IAC is a rollup of a lot of different apps across different categories including Angie’s List and Expedia. You just got to think that there are probably things that IAC learned at Angie’s List that they applied to Match and vice versa. It’s hard to say where the innovation is coming from, it might not even be coming from other dating products, right?

Sciple: Right. I guess one of the counterarguments you could say is that, “Hey, is Facebook an innovator?” I mean, Facebook has been a big, significant acquirer, and copier, and has built an incredibly huge company. There’s no argument to be made that this online dating is this next wave of social media becoming more intricate, online becoming more impactful, and how people meet and being the core driver of how people meet others. You don’t necessarily have to be the innovator, although I will say the Hyperconnect acquisition, which maybe we can talk about in a little bit of detail, now a $1.7 billion acquisition, the largest ever acquisition from Match, as we mentioned, this is a company that historically has been very acquisitive, so the largest ever acquisition is significant for this business.

They have Hyperconnect as two apps, as Luis mentioned, in this live streaming feel. But the interesting one for me is Azar. Azar offers live video and audio chat, and can instantly translate voice and text for users that speak different languages. It’s the ninth highest-grossing non-gaming app on Google Play, the highest-grossing one-on-one live video and audio chat app globally, so really a significant player in this market. To begin with, as Meilin mentioned earlier, they’ve had some success with their PlentyOfFish product, with live streaming. It looks like they may be looking to push into that a little bit more. A really interesting quote is, Match Group CEO Shar Dubey sent a note to employees that she expects the market for helping people connect what she called social discovery, that’s this market that Hyperconnect plays in. She expects that market to be twice the size of dating and then she says, “The augmented reality technology that Hyperconnect is developing in connection with that will fundamentally change the way humans connect online.” When I saw that, it really blew my mind because for me, I see this Azar thing and people one-on-one video chatting, and I think about Chatroulette, which does not have a very good [laughs] connotation online. What are your thoughts on her quote, that this social discovery one-to-one video chat is going to be twice as big as dating in the future?

Sanchez: It sounds a lot like social networking. Look how big of a business Facebook is. Look how big of a business Twitter is. Look at how fast the company like TikTok is that has emerged, video entertainment with social networking. When I saw this acquisition, it got me really excited for a few different reasons. You could tell that the tech is really good and they talk about their AI algorithm, they talk about their video infrastructure. They also talk about these AI filters and it reminds me a lot of Snapchat. It seems like there’s a lot of things there that they could probably transfer over to make the core Tinder or OkCupid apps better. But what also gets me excited is Match finally getting into Asia, and after this deal, they’re going to have a fourth of their revenue coming from Asia, which has been a market that they haven’t really been able to tap as well. I think that there is an interesting way that they could probably grow more to social networking, but there’s a lot more to it than that, in my opinion.

Sciple: What do you think, Meilin ?

Quinn: I pretty much agree with what Luis said. I’ll just add that the Azar app is part of its Hyperconnect acquisition. It’s the app that translates voice and text where users speak different languages, that especially seems very compelling to me as the world becomes more globalized. I’m really excited to see how that evolves.

Sciple: Yeah, Match historically has had some really significant success in integrating acquisitions. It’s exciting to see where things go from there. One last thing on Match before we hit the road, we mentioned earlier, Luis, how Bumble’s revenue growth has performed during the pandemic, and we did mention that non-Tinder brands have helped pull the company along somewhat, but I just want to double underline, how has Match performed over the past year? How did the company hold up during the pandemic? What should we be paying attention to with them going forward as far as drivers for the business?

Sanchez: The pandemic definitely slowed down the company’s growth rate, and I guess if you look at it in isolation, it slowed down to 12% in Q2 of last year, which doesn’t sound that bad, but this company was growing a lot faster heading into Q2. As the world started to adjust to the new normal, the company was able to start reaccelerating its growth rate to where last quarter, the fourth-quarter of 2020, it got back to a 19% year-over-year growth rate. Like I said before, that was largely driven by the non-Tinder apps. If you think about it, it makes sense that the non-Tinder apps did better because if you think about what Tinder stands for, it’s synonymous with being more spontaneous, meeting someone out of a bar app or hookup app, and that’s probably a behavior that people are less inclined to do in this environment. Whereas apps like Hinge are more about developing longer-term relationships, and you could definitely see people probably invest more or still be willing to invest more into relationships that they could probably wait till after the pandemic is over or when things are safe to meet up. It’ll be interesting to see what happens next.

The company did give pretty good guidance that basically revenue is going to keep growing at like a hiking rate. What we could actually see is that Tinder business reaccelerates faster than the rest of it if Tinder is more associated with going out to bars and meeting people in person. That’ll be an interesting thing to watch. I think the last thing, one of the stories here that I think is really interesting is just the difference between where Match is today and where Bumble is. Match has double the EBITDA margin, the profitability, as Bumble. Match is doing a high 30% EBITDA margin, whereas Bumble is doing a mid 20% EBITDA margin. We’ve actually seen, even though Bumble has seen its revenue growth decelerate in the past year, they’ve still managed to show a lot of operating margin in the sense that their profit margin went up from 20% in 2019 to 25% in the first three quarters of last year. As Bumble continues to grow, it’ll be really interesting to see if they could catch up to Match’s margins. That could definitely be a bull case for owning Bumble.

Sciple: Absolutely. As we’re heading out here into 2021, hopefully reopening this year, folks returning to dating, I want to ask you Mainland, are you betting on the roaring 20s? Do you think all the online dating is going to snap back in a big way with reopening?

Quinn: I think the data indicates that these levels of online dating engagement are here to stay, and on top of that, here to grow, whether we like it or not. It actually indicates that we don’t exactly love it. I think HUI Research found that in the recent study, 45% of men on dating apps reported feeling frustrated as opposed to confident or optimistic. But the fact is, more and more dates are meeting their spouses and dates on online dating apps.

Sciple: Yeah. I think a couple of ways to think about that, there’s more competition out there, and so sometimes when things get more competitive — but the market is changing in any way, in any event. I don’t think there’s any turning this ship around. Online dating is likely to become more and more important in the future. We’re doing everything online. The whole Internet stock evac was happening with GameStop and all these other things. I think the Internet’s only going to become more and more relevant. So as we talk about this trend of very exciting and I think there’s lots of growth ahead, I want to ask both of you, this question. As between Match and Bumble, which would you be most excited to invest in today and why? Meilin, I’ll let you go first.

Quinn: Sure. As I said, I’m a big fan of Match. For now, this seems like the more compelling investment to me. My thesis on Match that, No. 1, it has unparalleled brand recognition, thanks to Tinder and thanks to its broad portfolio of apps. It has something for everybody and for any stage and someone saving life. No. 2, because of its many brands, it has a vast inventory of data to use in its matching and monetization algorithms. No. 3, Match Group has pretty healthy financials. It continues to grow revenue. It’s net income positive. It has more than $750 million in free cash flow. So between all of this, I think Match Group is well-positioned to capitalize on the growing market of online dating. I see that the Match Group can still compete and thrive alongside Bumble. I don’t necessarily see that this is a winner take all market. Before we started recording, you mentioned that Bumble’s IPO S-1 mentioned that people use on average about two, three dating apps.

Sanchez: Yeah. I think the whole ecosystem is just really positive. I don’t think this is an either, or. I think people are probably using both. They’re trying everything they like and maybe they’re spending more money or more time on the one that seems to work for them. In that sense, I like them both. I think you could probably own both. I don’t think you have to own either one. I think you could just go on the ecosystem. I think they both have different things. They offer different things for different investors. Bumble is going to be that higher-growth in terms of their revenues growing pretty fast, but their margins still have a long way to catch up.

It is a really innovative culture, so they could probably come out with some things that they’re not doing today that maybe they see Match doing. Whereas Match, they have 14 different apps. They’re really acquisitive. The Hyperconnect deal is really interesting. They’ll probably continue to acquire more things. It seems like it’s hard for you to go wrong with Match if you hold it for a long term. I think if I had to make one prediction right, is that while there’s a lot of people dating online today, I feel pretty confident that this is only going to increase in the next decade. If you own Match, you definitely get exposure to all of that. I think if you own Bumble, you get a lot of exposure to all that too. Maybe Bumble is a little bit more risky because it’s just two apps versus 14. But it’s such a well-run company and they’ve done such a good job since they were founded. I don’t think it’s a bad bet to make here either.

Sciple: I think for me, I own Match Group. I don’t own Bumble today. I would like to see them report a few earnings reports and get settled in the public markets. But I do think Match is the top dog, first-mover, and for that reason, probably the one that I’m most excited to invest in. I think with Bumble though, if you’re really excited about the founder, the CEO, and the story, and the culture, I think you can certainly tell a story about how they can execute and close that gap with Match Group on profitability and how they can become more relevant going into the future. I think the market is picking up for multiple folks to win and I would be excited to continue following this space as it develops. I think it’s only going to become more and more important and there’s probably going to be other different ways to get your hooks into this business as an investor. As this market develops, we’ll be talking about it more on the podcast. But until then, Luis and Mainland, thank you so much for joining me and I hope to have you on again sometime soon.

Quinn: Thank you so much, Fools.

Sanchez: Thanks.

Sciple: As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against the stocks discussed, so don’t buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show. For Meilin Quinn and Luis Sanchez, I’m Nick Sciple. Thanks for listening and Fool on!




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