Summary

My previous rating was a buy for Bumble (NASDAQ:BMBL), as I remained positive on the business’s short- and medium-term outlook. This post is to provide an update on my thoughts on the business and stock. I reiterate my buy rating for BMBL, as I believe the business can continue to grow in the teens for the foreseeable future. While the concern regarding Hinge growth has merits, it does not necessarily mean that BMBL is losing share. With growth in the high teens and a conservative revenue multiple assumption, the upside remains attractive.

Investment thesis

BMBL reported 3Q23 revenue of $276 million, with growth that was in line with my full-year forecast of 18% (refer to my previous post’s model). Breaking down revenue growth contribution, Bumble App reported revenue of $222 million, representing 23% growth, driven by net adds of 147k and offset by a slightly weak ARPPU (average revenue per paying user) of $28.38 (down 2% vs. 3Q22). Elsewhere, Badoo & Other reported revenue of $54 million, driven by net adds of 40k and an ARPPU of $12.79. The business also saw an improvement in adj EBTIDA margin by 70bps annually and 140bps sequentially to 27.3%, driving adj EBITDA to $75 million. At a high level, I think the market is reacting positively to the 3Q23 results and the change in CEO. The share price continued to drift lower after my August’s post, from ~$17 to $12 before recovering to ~$14 after the results. My take is that 3Q23 results were very positive and in line with my expectations, and I also think there are two schools of thought at play here, which is causing the share price to stay at the current level and not surging back to at least the $17 level.

Starting with the bearish camp, 3Q23 results suggest that the Bumble app is being greatly affected by macro headwinds, as management’s FY24 outlook assumes Bumble app revenue growth to further decelerate to 17% at the midpoint. This is a very bad guide, as it breaks the 20% growth threshold that Bumble has been sustaining. It also resets the consensus expectations for FY24 as the growth rate is based on 17%, thereby impacting FY25 estimates as well. The weak performance also increases the doubt that the Bumble app might be losing share to competitor Hinge. As Match Group reported in their 3Q23 earnings, Hinge continues to see very strong, accelerating growth rates, and management reiterated their expectation for a $400 million revenue target. This target implies that Hinge will see another quarter of growth acceleration (~56%).

That bearish argument has its merits, for sure, but in my opinion, this does not mean that BMBL (as a whole) cannot continue to grow. Even at high teens growth rates (which I modelled previously), the stock remains attractive (more on valuation later). The Bumble App growth momentum has slowed but not stopped, and I think it is too early to say that Bumble App is losing share as it is still expected to grow in high teens. I could argue that Bumble App is still gaining share when I compare its growth rate against Tinder App (which grew 10.5% in 3Q23). Also, the current economic cycle makes it hard to separate cyclical weakness from structural weakness. My belief is that it is more of a cyclical weakness as the Bumble App continues to see strength internationally, especially in Western European markets. For instance, in Germany, the Bumble app is the second most downloaded dating app. Other improvements, such as compliments leading to a 65% increase in chances of getting matched points, improve the user experience, which should support growth as well. In addition, Bumble App growth might be optically depressed at the moment as it is still testing out its higher-priced Premium Plus mode. Once management finds the sweet spot, I expect this to drive ARPPU upward, which supports growth. All in all, despite fears around growing competition from Hinge, I think demand for the Bumble App remains alright.

In addition to the Bumble App, management plans to rebrand and reposition Badoo next year, which could be another growth catalyst to drive growth and bring forward the timeline for additional monetization efforts.

In Western Europe, we saw a robust user payer and revenue growth. We remained the number two dating app in Germany and we gained download share in markets such as Austria, France, Switzerland and the Netherlands. 3Q23 earnings results call

Finally, one last thing about the new CEO. Like any other change in leadership, it will undoubtedly bring about some degree of uncertainty. The new CEO, Lidiane Jones, currently Chief Executive Officer at Slack Technologies is probably someone that BMBL needs right now. Her experience in software should be a good fit for the BMBL emphasis on product development.

Valuation

My target price for BMBL based on my model is $17.93. There is no change to my growth assumptions as BMBL continues to track well against my expectations. I continue to believe growth is sustainable at the current pace, given the international momentum and the potential for growth acceleration once the higher-priced tier mode is rolled out. However, the major change to my model is that my model case reflects a more conservative approach, as the uncertainty with CEO change and bad growth comps against Hinge might continue to weigh on sentiment. Also, BMBL has historically traded at a discount to Match Group, which is trading at 2.9x NTM revenue now. It is unlikely for BMBL to trade above with a very strong catalyst.

Risk

The change in CEO is the latest risk that could further weigh on the stock. While the new CEO has a background in product development, she does not have any expertise in running a dating app company, which is drastically different from a messaging app. As such, I see an elevated risk of misexecution in the near term.

Conclusion

I maintain my buy rating for BMBL. While there is merit to the bearish argument, I argue that Bumble App’s growth slowdown doesn’t signify a loss in market share. International strength and roll out of the higher-priced tier should continue to support growth. Additionally, the rebranding of Badoo underpins potential growth catalysts. My target price of $17.93 reflects continued growth momentum, albeit with a conservative approach due to lingering uncertainties and historical valuation relative to Match Group.