Match Group (MTCH) has had a remarkable year, and its success has been reflected in its soaring stock price, which is up about 60% thus far in 2019, vastly outperforming the broader market. The company's remarkable growth has been driven by the massive success of its online dating app Tinder, which has added more than 1.3 million new members so far this year, growing to 5.67 million, up 30% compared to its year-end levels in 2018.
Now one of Tinder's biggest rivals, Bumble, has a powerful new backer. Investment firm Blackstone Group (BX) announced last week that it had purchased a majority stake in Bumble parent MagicLab in a deal that valued the company at $3 billion. Bumble founder and CEO Whitney Wolfe Herd -- who also helped co-found Tinder -- will head the company.
This could spell trouble for Match Group, as Blackstone plans to provide a multibillion-dollar capital infusion for MagicLab to boost its position in the online dating industry as part of a strategy to help develop fast-growing investment opportunities.
The Bumble difference
Unlike many other dating apps, only women can make the first move on Bumble, initiating the conversation that could eventually result in a date. The site also allows users to create and expand a business network via Bumble Bizz or expand their social circle through Bumble BFF.
Earlier this year, Bumble revamped its corporate structure into a holding company -- MagicLab -- home to a group of successful dating apps including Bumble, Badoo, Lumen, and Chappy. Blackstone plans to bolster Bumble's competitive advantage by accelerating its expansion in new geographical markets to take on Match while also increasing the utility of its nondating features.
Match Group must have recognized the potential for a female-centric dating app like Bumble, reportedly offering $1 billion last year to acquire Bumble and its sibling dating apps, but its advances were rejected. Later, things turned ugly when Match Group filed suit against Bumble on charges it illegally copied features from Tinder.
This could end up being a winning strategy for Blackstone Group and for Bumble. As the global economy slows, Blackstone has been looking for ways to juice its growth. The firm resisted the temptation to take smaller stakes in fast-growing but unprofitable companies and has instead decided to make a majority investment in one that's already making money.
MagicLab is profitable: It has a revenue run rate of just under $500 million and boasts more than 75 million users, according to The Wall Street Journal. The company recently generated year-over-year growth of about 40% while maintaining strong cash flows. This isn't the result of Bumble alone but is bolstered by the success of Badoo, a name that might be unfamiliar to U.S. investors. The dating app, which is popular in Europe, has a staunch following of reportedly 450 million users across 190 countries and generated $400 million in revenue last year.
The infusion of cash from Blackstone will give MagicLab the resources it needs to move more quickly to take on Match Group. At the same time, Blackstone gets a visionary leader and a company with a proven track record.