Bumble Makes a Good First Impression and JD.com Keeps Delivering

In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Maria Gallagher to discuss Bumble's (BMBL -3.89%) first quarterly report as both a public company and a hit with Wall Street. Also, JD.com (JD 0.12%) finishes up a strong fiscal year, and Chis and Maria take a look at the latest quarter from Party City (PRTY -60.00%).

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This video was recorded on March 11, 2021.

Chris Hill: It's Thursday, March 11th. Welcome to MarketFoolery, I'm Chris Hill. With me, from the financial capital of the United States of America, it's Maria Gallagher. Thanks for being here.

Maria Gallagher: Thanks so much for having me.

Hill: We've got specialty retail, we have international retail, but we're going to start with the business of relationships. Bumble's first earnings report as a public company was a hit. Revenue up 31%; we will get to the stock in a minute, but you tell me what stood out in Bumble's quarter?

Gallagher: I think what was interesting to me was how many paying users are on both of Bumble's platforms. Bumble is one of their apps, in which women make the first move app, and then Badoo, which is popular in Europe and Latin America, has this slogan date honestly. That's a different app all under the Bumble umbrella. The Badoo, there were 1.4 million paying users, and there were 1.2 million paying Bumble users. That's just people who pay for it, and then their total users as of last September was about 42 -- probably higher now -- million. I thought that that was interesting. Both of those numbers were a little bit higher than I thought. Then, on top of that, it finished off its quarter with 31% revenue growth. For the full year of 2020, revenue was up 19% to $582 million. Their guidance for fiscal year 2021, their revenue is in the range for $716 million-$726 million. 

Something that I also think is pretty interesting is that Bumble's at a much earlier stage of growth than Match, which is the other company that you think of when you think about online dating. I would expect it to be growing much faster, especially during 2020 with that shift to online dating, but they grew 19% in 2020, Match actually grew 17% with revenues of $2.4 billion. Tinder alone has revenues of $1.4 billion. There's obviously a difference in size and ability, but I would actually expect for Bumble to become more competitive with Match. It really needs to grow much faster, and much more meaningfully than it did this past year. I think the tailwinds were in favor of growth, so I was a little bit disappointed with the full year.

Hill: That puts you at odds with the stock market as a whole, because shares of Bumble are up 13% this morning. Based on everything you just said, do you think this is -- I don't want to say riskier than Match, are you surprised that it's up 13%?

Gallagher: I'm not totally surprised. It was still a good quarter, it was still a good year. They are growing. They are differentiated within the platform. I understand investor confidence in it. I just think, for myself, when I'm thinking about all of the online dating market, I was just a little bit surprised that they didn't grow more when people had no other choice but to use an online platform. I think that it's interesting that they talk about how they see themselves growing in terms of platonic relationships as well. They want to monetize Bumble BFF at some point. They've Bumble business to make business connections. They see themselves as more of an ecosystem that can grow in the next five to 10 years, so I'm interested to see how that can play out. I think they have a strong management team. I think it's an interesting story. I'm not shocked that the stock is up, but I just think for me, personally, if I was looking at online dating, Match is so much bigger, has so many more brands. I think it's really hard to compete with them in a meaningful way.

Hill: Last thing before we move on, and I think you may have already answered this, or at least indicated what the answer is. Match has grown in parts through acquisition. There are so many dating apps under the Match Group umbrella. Do you think Bumble is thinking about that strategy or are they much more just focused on, we've got our core brand asset and we're just going to grow this as much as we can?

Gallagher: I think probably the latter, they know that Match can probably be more competitive in terms of how much they could offer other smaller apps, so I think that they're probably just planning to get people to be loyal to Bumble and try to grow it as much as they can, Bumble and Badoo.

Hill: JD.com is a very different business. But just like Bumble, JD's fourth-quarter revenue was up 31%. Profits were also higher than expected, but shares of the Chinese e-commerce company are basically flat today. I know it's had a great last 12 months. This was a really strong quarter.

Gallagher: Yeah, it was a really strong quarter. They finished out with revenue of $34.3 billion, beating analyst estimates. Their annual customer accounts were up 30% to $471.9 million, just their highest number ever. They are moving forward. They see growth in those lower-tiered cities throughout China, as well as attracting those new and younger customers. This year, they saw growth in both their net promoter score and merchant renewal rate and strong growth through established business like electronics as well as newer businesses like healthcare. 

I think actually what was really interesting to me reading through this report was that I think China is a test case for what's going to happen with America as we ease restrictions from lockdown because most restrictions have been lifted in China. The order volume for their grocery store segment is up 45% and it's one of their fastest-growing marketplaces. I think it indicates that our spending has been permanently shifted due to the COVID pandemic, and they're still growing in these meaningful ways. I think that that's pretty interesting as we think through what that pent-up demand looks like and also what it looks like in terms of how permanent these shifts are of what people are spending their time and money doing. I know my sister started using Whole Foods delivery and she says she doesn't care when normal comes back, she's never going back to doing her own grocery shopping.

Hill: This speaks to something that we've seen a lot of over the last 12 months. Here in the U.S., I think it's probably among other things, the ripple effect of the struggles Amazon had early on with fulfillment, and you had a lot of people trying different online delivery retailers for the first time. With that in mind, because look, anytime, whether it's JD.com, Amazon, whoever, new customers is always going to be a metric that we look at. But in the case of JD.com, I don't want to say that they become less important, but is essentially customer retention, does that move higher up the list in terms of importance? Because presumably, a lot of these online retailers have gotten new customers. Now they have to make sure they can keep them, and obviously in the case of your sister and Whole Foods, shut out to Whole Foods, they've got a customer for life there, but it seems like customer retention moves to the forefront in 2021.

Gallagher: Yeah. I would agree with that and JD really has that foothold and that strength in those lower-tier cities in China. As they grow out those businesses in those cities, I do think at some point, we're seeing it now that they really need to make sure they get that customer retention. That's why, when you see their merchant retention being high and that net promoter score being high, those are really good indications for the future of how people see that company.

Hill: No celebration today for shareholders of Party City. Fourth quarter revenue was good, but profits were lower than expected. Same store sales fell nearly 6%, and shares of Party City are down more than 10% today. Yet, it's hard for me to feel too bad because this is a stock -- I had to check two different sites to make sure the site I was checking first wasn't buggy -- this is a stock that's up 550% in the past year. That's so much higher than I would've guessed for Party City. As I've said before on this show, I happen to love Party City.

Gallagher: I love that you love Party City. I also just think everything about Party City was surprising to me. It had less stores than I expected. They closed 77 between 2019 and 2020, but they ended 2020 with 746 Party stores. I feel like they're everywhere because you always see Party City, so I was surprised with that number, but then I was also very surprised on the upside for their revenue. Their fourth quarter revenue was, like you said, down by still $648 million, and then their 2020 revenue was still $1.8 billion. It was down 21%, so it was down less than I thought it would be down for, having been shut down for at least half of the year or about half of the year. It was just so much higher than I would think with the baseline of it being Party City. I just wouldn't have expected such high revenue numbers. 

They are saying they pivoted online, their North American digitally enabled sales were up 35% over the year and their curbside delivery growth was also up 35%, and they are getting back to some normal. They said the back half of the year has been better than expected. The strength of their core categories is really coming back. As the weather gets nicer, as more people can gather outside, more people get vaccinated, I'm interested to see what the next year looks like for them if they have that pent-up demand of people really wanting to celebrate now that they can see their friends. Or, I mean, we talked about it a little bit earlier offline that we see so many people having parties alone in their apartment with one or two roommates, and so to make them feel special, you get the big balloons and you really go all out for an at-home celebration. I'll be interested to see what happens to them over the next year. But I was really just overall surprised by a lot of different things within the Party City report.

Hill: There are times over the past five years or so when one of the headlines in the business media will be about activist investors taking a stake in businesses that are strong and growing. Whenever I see those headlines, I think to myself, what are you doing? What do you think you're going to do to improve this business that is already doing really well? I look at Party City as a business that is crying out for an activist investor to come in there. Because I do think, to your point about the locations, they probably have more locations than they need, they have, by definition, therefore, more employees than they need, there is a way to make this business more profitable. The market cap of Party City is $750 million, I don't know. Again, my affinity for Party City is completely emotional just because it's not like I look at this business and think, what a great business. It's just the one or two times a year I'd go into a Party City, I always have a great time. It's just a fun store to poke around in. I always end up spending more money than I think I'm going to spend because nothing's really all that expensive inside Party City. So I don't know. It really does seem like an activist could go in here and make some serious [...].

Gallagher: They are open about their strategic initiative, so they are opening next-gen stores which are hoping to be more streamlined and better for the experience of the customer. They're opening 22 of them in the next year. They reduced some of their inventory. They talked a lot about how they are the dominant player in the global balloon business, which I thought was a really fun thing to read about. They want to have good prices, like you said, nothing is too expensive. They want to build up that omni-channel. I think that they're trying. I think an activist would come in and have a similar strategy. I don't know. Maybe an activist could do it better, maybe Party City's current management will be able to execute it well, but they do seem to have that plan moving forward of trying to make the in-store experience as cheap, as fun, make people want to go back, make people when you go in and say, you know what, I'm going to spend 20 minutes walking around and buy as much as I feel like, and you could feel that similarly when you shop online and you say, maybe I also need those different types of balloons. So, I'm interested to see what happens with them over the next several years.

Hill: Maria Gallagher, always great talking to you, and thanks for being here.

Gallagher: Thanks a lot for having me.

Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is Mixed by Dan Boyd, I'm Chris Hill. Thanks for listening, we'll see on Monday!