Bumble (BMBL 1.05%) was one of the most anticipated IPOs of 2021. The tech company, which owns its namesake female-oriented dating app, as well as another dating platform called Badoo, stirred up quite a lot of buzz when it went public on Feb. 11.
But, Bumble has thus far been a disappointment on the stock market -- with its shares dropping by more than 60% since it went public and currently sitting well below its IPO price of $43 per share. Unless the company can make a swift 180, it'd be best to stay away from Bumble.
Should investors swipe right on this leading online dating company?
A word on competition
With dozens of companies battling it out for supremacy, the online dating area is highly competitive. Bumble's namesake app, from which it records the bulk of its revenue, seeks to attract customers in a unique way. By putting women in control -- in heterosexual pairing, men cannot initiate conversations on the platform, only women can. Through this Bumble seeks to empower women while ensuring their safety when navigating the online dating world.
The Bumble app first launched in 2014, and since then, it has amassed 1.5 million paying users as of the end of the third quarter. Clearly, the app has been at least somewhat successful. Badoo, which first launched in 2006, is popular in Europe and South America and had 1.3 million users as of Sept. 30.
With that said, it's worth comparing Bumble's business to that of its main competitor, Match Group, which owns Tinder and more than two dozen other dating apps and websites. Match's strength lies in the network effect, that is, when the value of a service increases as more people use it.
People interested in online dating are likely to turn to those platforms with the most potential suitors. As the number of people on an app increases, it becomes even more appealing. Bumble could undoubtedly benefit from this dynamic as well, but with 10.4 million paying users as of the end of the third quarter, Tinder alone dwarfs both Bumble and Badoo combined in this category.
This is something investors should keep in mind.
Image source: Getty Images.
The financial results
Bumble had 2.9 million total paying users across its two apps as of Sept. 30, a metric that grew by a meager 4.6% year over year. Its namesake app performed relatively well, with its total paying users increasing by 19.5%. But Badoo's payers dropped by 8.5% year over year.
By comparison, Tinder added 1.7 million paying users during the third quarter; its 10.4 million total at the end of the period increased by 19% year over year. Match Group's total paying subscribers increased by 16% to 16.3 million. In other words, Match Group grew its userbase faster than Bumble during the third quarter, despite the former already having far more customers than the latter.
What's more, while Match Group's year-over-year subscriber growth rates increased slightly throughout the year -- it came in at 12% in the first quarter and 15% in the second quarter -- Bumble's paying users moved in the opposite direction. In the first quarter, it recorded a 30% year-over-year increase to 2.8 million, and in the second quarter, its total paying users grew by 20% year over year to 2.9 million.
For the third quarter, Bumble's revenue increased by 24% to $201 million. Here, too, Bumble's year-over-year top-line growth rates decreased sequentially in each of the first three quarters of 2021.
Meanwhile, the company reported a net loss of $10.7 million during Q3, compared to the net loss of $22.8 million reported during the prior-year quarter. The fact that Bumble is currently not consistently profitable may not be a significant issue yet. But unless Bumble can continue gaining paying users at a rapid clip and compete with Match, it may become difficult for the company to turn the net losses into net earnings.
Should investors buy?
While Bumble's shrinking paying users growth rate is a bit concerning, in my view, it's not enough to justify selling the company's shares, at least not yet. After all, Bumble has been publicly-traded for only about a year, and three-quarters of recorded performances are hardly enough to make a definite assessment of the health of the company's business. That's especially true considering the potential effects of the pandemic on Bumble's operations.
Dating apps were very successful in 2020 at the outbreak's peak due to government-imposed lockdowns. Once these lockdown orders expired in some countries, that had a negative effect on some dating platforms. These dynamics make it even more difficult to properly assess Bumble's performance since it became a publicly-traded company, although there are worrying signs. That's why I'd assign a hold rating to the tech stock today.
