Bumble (BMBL 2.45%) went public last February at an IPO offering of $43 per share. The online dating company's stock opened at $76 on the first day, hit $84.80 the following day, but subsequently tumbled back to the low $30s.
The market's enthusiasm for Bumble fizzled out as its growth decelerated. Intense competition from its larger rival Match Group (MTCH 0.79%), which owns Tinder, and the inflation-driven retreat from higher-growth tech stocks exacerbated that pain.
Bumble's stock might seem reasonably valued now at six times next year's sales, but investors should be mindful of five red flags for its future.
Image source: Getty Images.
1. Badoo's ongoing decline
Bumble's namesake app differentiates itself from Tinder and other online dating apps by letting women make the first move. However, its parent company owns two apps: Bumble and Badoo.
Badoo is an older dating app that is more popular in Europe and Latin America. It was inherited from the initial partnership between Bumble's founder and CEO Whitney Wolfe Herd and Badoo's founder Andrey Andreev in 2014.
Unfortunately, Badoo's total number of paying users declined 9% year over year to 1.33 million last quarter. Badoo's revenue, which accounted for 29% of the company's top line, also fell 3% year over year and partly offset Bumble's 39% revenue growth.
Bumble mainly blamed Badoo's decline on the resurgence of the pandemic, but it could also be losing mindshare to Match's Tinder and other dating apps. Badoo's messy history, which was mired in sexual misconduct allegations, could also tarnish Bumble's reputation as a female-friendly platform.
2. Bumble's decelerating growth
Bumble is growing a lot faster than Badoo, but it's still losing steam. Its number of paying users increased 20% year over year to 1.53 million last quarter, but that marked a slowdown from its 36% growth in the second quarter and 44% growth in the first quarter.
By comparison, Match's total number of paying users (64% of whom use Tinder) rose 16% year over year to 16.3 million in its latest quarter and accelerated from its 15% growth in the previous quarter.
As the underdog, Bumble should be gaining paid users at a stable or accelerating rate to keep up with Match -- but that isn't happening yet.
3. Obfuscating its monthly active users
In its IPO prospectus, Bumble revealed that it hosted 42.1 million monthly active users (MAUs) across both of its apps as of September 2020. Based on Sensor Tower's data, Bumble accounted for 12.3 million of those MAUs.
However, Bumble stopped disclosing its MAUs after it went public. That jarring shift leaves investors in the dark about its overall growth, its ratio of free to paid users, and its ability to convert its free users to paid memberships.
Obfuscating that key metric suggests that Bumble's MAUs have either stalled out or declined since its IPO. It's occasionally mentioned its MAU growth in discussions about overseas markets or its BFF feature for platonic friendships, but it hasn't shared any exact numbers yet.
4. Scattershot plans for the future
I believe Bumble should sell Badoo, continue to expand its core app, and possibly buy smaller, higher-growth dating apps to diversify its audience and widen its moat against Match's portfolio of more than a dozen apps. It should also roll out an integrated payment system to bypass Apple's App Store fees.
However, Bumble seems far more interested in opening experimental restaurants, selling branded apparel and other products, and discussing vague, buzzword-filled plans about Web 3.0, blockchain, and the metaverse. All those moves suggest that Bumble overestimates its brand appeal while underestimating Match's ability to gradually pull away its users.
5. The macroeconomic threats
Lastly, Bumble is highly exposed to macroeconomic threats like new COVID-19 variants, inflation, and rising interest rates. If COVID-19 spreads again as inflation throttles the average consumer's spending power, people could go out on fewer dates, and Bumble's engagement rates will wither.
Meanwhile, higher interest rates could tame inflation but punish speculative and unprofitable tech companies like Bumble. Match, which is firmly profitable, would be a much safer investment than Bumble in that environment.
Should you still buy Bumble?
Bumble will remain a polarizing stock for the foreseeable future. The bulls will note that Bumble's average revenue per paying user (ARPPU) continues to outpace Match's comparable growth in revenue per payer (RPP) and that it still has plenty of growth potential in overseas markets.
But as I just pointed out, Bumble also has a lot of weaknesses. I own some shares of Bumble, but I don't expect it to rally again until it addresses these pressing issues and presents a clearer strategy for its long-term growth.
