Bumble (BMBL 1.05%) recently generated a lot of buzz after two developments jolted the online dating company's stock.
First, Bumble's stock hit its highest levels in more than a month on Oct. 21 after Alphabet's (GOOG 0.58%) (GOOGL 0.42%) Google reduced its Play Store fees for subscription-based apps. But a day later, Bumble's stock pulled back after Snap's (SNAP 1.61%) messy third-quarter earnings report sparked fresh concerns about the company's app install ads.
Should Bumble's investors pay close attention to these recent developments? Let's dig deeper and see how they could impact the company's future.
Image source: Getty Images.
Another victory against mobile app stores
Bumble and its larger rival Match (MTCH +2.33%) both generate most of their revenue from subscription fees. They split a large percentage of that revenue with Apple's (AAPL 2.15%) App Store and Google Play.
Apple and Google both initially retained a 30% cut of that revenue, but pressure from developers and regulators has forced them to gradually reduce that percentage. In 2016, Apple reduced its cut from 30% to 15% for subscription plans after the first year. Google followed suit in 2017.
But last month, a court passed an injunction -- related to Apple's legal battle against Fortnite publisher Epic Games -- that prevented Apple from blocking iOS apps from accessing external payment platforms.
In other words, companies like Bumble and Match are now allowed to redirect their iOS users to other payment sites to avoid Apple's App Store fees. Google didn't face similar complaints because it didn't officially block Android apps from accessing external payment platforms.
On Oct. 21, Google announced it would reduce all of its fees for subscription services to 15% at all times beginning in 2022. It also launched a new program that will allow e-books, music streaming services, and other apps with paid content to access fees as low as 10%. Apple might need to follow Google's lead to stay competitive and appease the antitrust regulators.
In its SEC filings, Bumble says its cost of revenue "consists primarily of in-app purchase fees due on payments processed through the Apple App Store and Google Play Store." Therefore, any reduction to those fees could significantly boost Bumble's gross margins.
Snap sneezes, and Bumble catches a cold
Google's fee reduction brought the bulls back to Bumble for a day, but Snap's revenue miss in its third quarter ended that brief rally.
Snap's revenue rose 57% year over year during the quarter, but it missed analysts' expectations and provided softer-than-expected guidance for the fourth quarter. The social media company attributed that weakness to Apple's recent iOS update, which enables users to opt out of data tracking features, and macroeconomic headwinds for some of its advertisers.
Snap's comments torpedoed the stocks of other large targeted advertising companies like Facebook and Google. But they also sank shares of Bumble and Match, which rely heavily on app install ads. If advertising networks can no longer identify users with personal data, Bumble and Match could struggle to gain new users through their targeted app install ads.
During its conference call, Snap CEO Evan Spiegel admitted that Apple's changes were making it "more difficult for our advertising partners to measure and manage their ad campaigns for iOS."
It's unclear exactly how much Bumble relies on Snap for ads and new users, but it notably partnered with Snap earlier this year to integrate Snapchat's AR lenses directly into its video chats and messages.
What do these developments mean for investors?
The reduction in Google's subscription-based fees is certainly good news for Bumble's margins. Snap's warning about Apple's iOS update might hobble the effectiveness of its targeted ad campaigns, especially in its higher-growth overseas markets like India, but that volatility could subside as advertising platforms gradually tweak their platforms and algorithms.
Therefore, neither of these developments has significantly changed my long-term view of Bumble: It's still carving out a defensible niche with its female-oriented platform, it still has plenty of room to expand its ecosystem with overseas users and non-dating features, and its stock remains reasonably valued relative to its growth at 11 times next year's sales.
