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Bumble's IPO Was a Honey. Here's Why Investors Could Get Stung.

By Danny Vena and Jason Hall - Feb 26, 2021 at 8:00AM

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The online dating provider joined recent IPO stocks that surged, but trouble lurks below the surface.

There was strong demand for shares of Bumble (BMBL -4.77%) during its recent IPO. Stock for the online dating app made their debut earlier this month and surged 64% on its first day of trading, but it has lost ground in the weeks since. There are details tucked away in the company's regulatory filings, however, that should give investors pause.

On this clip from Motley Fool Live, recorded on Feb. 10, "The Wrap" host Jason Hall, Fool analyst Nick Sciple, and contributor Danny Vena the company's growth picture and why investors should exercise care.

Jason Hall: Danny, let's talk a little bit about Bumble. Bumble is going to be IPOing pretty soon. What do you have for us?

Danny Vena: Well, for investors that aren't familiar with it, Bumble is a popular dating app that competes with one of Nick's favorites, market leader (MTCH), in the online dating space.

Now, Bumble was actually created by the co-founder of Tinder. This platform is female-centric. It allows women to make the first move.

The company has two dating apps, Bumble and Badoo. These are two of the highest-grossing online dating mobile apps in the world. The apps have roughly 42 million monthly active users as of the third quarter and about 2.4 million of those are paying customers.

It's also among the top five grossing iOS lifestyle apps in 30 different countries. While, Badoo is one of the top five grossing lifestyle apps in 89 different countries. It gives you an idea of the scope of where these companies operate.

Now, Bumble is free to use and it generates revenue either when customers purchase premium subscriptions ... and I should say, that gives users the ability to boost their profile search so that more people see them, and they also get the opportunity to checkout who has already liked them on the app. Then again, the company also generates revenue from advertising and partnerships.

Now, from a financial standpoint, Bumble is a little bit of a wild card. During the first nine months of 2020, it generated revenue that was up about 15% year over year, but that was a significant slowdown from the 36% growth that it generated in 2019. The bottom-line deteriorated as well. In 2019's first nine months, they had a gain of roughly $69 million, and during 2020, they lost about $117 million during the same period.

This is a company that has a lot of scale. It's got a lot of reach. Even looking through the S-1, there wasn't a lot of explanation about why it was that the growth slowed down as much as it did, particularly in a year when was seeing stellar growth. So that's one concern.

The company is going to list its stock on the Nasdaq exchange using the ticker BMBL. Actually, we're expecting, and I haven't seen it yet, but Bumble is supposed to drop the final price that it plans to offer shares at. Right now, that number was sitting between $37 and $39 per share, and that's up from a range of $28 to $30.

This gives you an idea, there's a huge amount of investor interest in this. It also increased the number of shares that was offering from 34.5 million to 45 million, so that was a huge increase in the number of shares.

Finally, it's worth noting that The Blackstone Group (BX -3.98%), which was an early investor, will still control roughly 57% of the company after the shares hit the market. If things go according to rumors that the stock should hit the public markets and debut sometime tomorrow.

Hall: Danny, I have one question about the IPO and the capital raise. About a year ago, when Warner Music (WMG 0.77%) went public, the IPO was, all of the cash that was raised was by the private company that held it, so they were selling part of their stake. Warner Music actually didn't get a penny of the IPO capital. Is that the case with Bumble, or are they actually raising capital for the company itself?

Vena: No, they are actually raising capital for the company itself. The Blackstone Group still owns all these shares, and I don't recall off the top of my head, but I don't remember seeing that the early investors were offering shares for sale. I think they're hanging on to the entire investment right now. I think what you're seeing is just a company getting its hands on some money so they can expand further and really take on Match a little better.

Hall: All right. Great, Danny. Thanks for that.

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Stocks Mentioned

Bumble Inc. Stock Quote
Bumble Inc.
$28.37 (-4.77%) $-1.42
Match Group, Inc. Stock Quote
Match Group, Inc.
Warner Music Group Corp. Stock Quote
Warner Music Group Corp.
$24.89 (0.77%) $0.19
The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
$91.07 (-3.98%) $-3.77

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