Falling in love is about much more than a simple equation. Investing in love is different.
Following its public offering last month,
valuation has contracted significantly, with shares down 20% in about three weeks. But the company is still trading at a premium to dating peer
—perhaps undeservedly so.
In its first report as a public company, Bumble said its fourth-quarter performance was largely as Wall Street had expected: Revenue came in slightly above the analysts’ consensus estimate, and adjusted earnings before interest, tax, depreciation and amortization was as anticipated. Bumble said the popularity of its namesake app continues to expand at a rapid clip, with revenue up 47% year over year. That is significantly faster than the total revenue growth of 19% Match put up across its apps for the fourth quarter.
The Bumble app, which requires women to make the first move, is now the second-highest-grossing dating app in the world. But the issue for Bumble the company is that it isn’t, in fact, a one-woman show. Bumble’s other dating app Badoo, which doesn’t require women to make the first move, is significantly larger in terms of total users. And despite the Bumble app’s popularity with the more lucrative female demographic, Badoo still has slightly more paying users. That matters because Badoo’s revenue growth seems to have plateaued. Bumble said its “Badoo and Other” revenue grew by less than 4% year over year in 2020, down from the roughly 8% growth the company reported the year prior.
Lauren Schenk notes that Badoo’s significantly lower average revenue per user compared with the Bumble app likely means that it is also a lower-margin business. That could explain why, even while Bumble has had great success monetizing its Bumble app, the company’s overall margins are comparatively lower than those at Match.
Scale is also a factor. Match has benefited from expense optimization since it owns so many apps. That has also helped in terms of product development: With its recently announced Hyperconnect acquisition, for example, Match has said it plans to employ that company’s technology across its other platforms.
Ms. Schenk also points out that Match has enjoyed a first mover advantage in online dating and from Tinder’s viral word-of-mouth, allowing it to spend less on marketing than peers. Bumble’s more unique story, while resonant in Western countries, is different relative to most dating apps, which allow anyone to initiate contact. It still remains to be seen whether Bumble’s “women first” branding will resonate in societies with more traditional gender norms, she said.
The Covid-19 recovery certainly should help Bumble’s business, much like it will benefit all dating app platforms this year. But Bumble could specifically see upside in the coming quarters from some recent changes it has made to its Bumble app, placing popular new features behind its paywall and beginning to offer others for a more premium price. Investors should keep in mind that this strategy was enormously successful for Match with Tinder.
Still, the midpoint of Bumble’s full-year guidance implies a margin on the basis of adjusted earnings before interest, tax, depreciation and amortization of just 24%—less than the more than 26% margin it put up in what is a seasonally strong fourth quarter. That is also much lower than the 37% Wall Street expects to see from Match this year based on the guidance it gave for its own business last month.
Based on that equation, it is entirely possible that Bumble investors are falling too hard, too fast.
Write to Laura Forman at firstname.lastname@example.org
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8