Is Bumble a Buy?

Bumble's (BMBL 1.39%) stock surged 27% on May 12 after the online dating company posted its first-quarter earnings report. Revenue rose 24% year-over-year to $211.2 million, which beat its own guidance for 21% to 23% growth. Meanwhile, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 8% to $49.8 million, which also topped its own forecast of $47 to $49 million.

For the second quarter, Bumble expects revenue to rise 17% to 19% year-over-year and adjusted EBITDA to stay roughly flat. For the full year, it expects revenue to grow 22% to 23%, but for its adjusted EBITDA margin to decline from 27.1% to between 24.5% and 25%.

Let's review Bumble's growth rates, near-term headwinds, and valuations to see if its post-earnings pop is worth chasing.

Image source: Getty Images.

How fast is Bumble growing?

Bumble generated 74% of its revenue from its namesake app, which lets female users make the first move, in the first quarter. The rest came from its older app Badoo, which is more popular in Europe and Latin America, and Fruitz, a French dating app it acquired earlier this year.

Bumble's revenue from its core app rose 38% year-over-year, but the Badoo and Other segment's revenue fell 4% as it grappled with Badoo's loss of users across Russia, Eastern Europe, and Central Europe following Russia's invasion of Ukraine. In response, Bumble discontinued its operations in Russia and Belarus while removing its paywalls in Ukraine.

Russia, Ukraine, and Belarus accounted for 2.8% of the company's total revenue in 2021, and nearly that entire amount came from Badoo, which was founded in Russia but now based in London.

Badoo was already struggling against Match's (MTCH -0.19%) Tinder and other dating apps prior to the Ukrainian conflict, and it will likely remain the company's weakest link for the foreseeable future. However, the growth of Bumble's main app could continue to offset those declines.

Bumble is growing, Badoo is shrinking

Bumble's growth in paid users accelerated sequentially for the second straight quarter, but its "Badoo and Other" segment saw its number of paid users drop to its lowest levels since Bumble's IPO, even after it bought Fruitz to offset Badoo's decline.

Data source: Bumble. QOQ = Quarter-over-quarter.

As the smaller underdog, Bumble should be growing a lot faster than Match to be considered an attractive investment. However, Match also grew its total payers by 1% sequentially to 16.3 million in its latest quarter. Its flagship app Tinder grew its payers 1% sequentially to 10.7 million.

But Bumble beats Match in one key category

Badoo's slowdown wasn't surprising, but Bumble continued to grow by gaining overseas users across Western Europe, Southeast Asia, India, and Latin America.

In the U.S., it launched new features -- including "Bumble IRL" for connections to real-world experiences, sales of virtual gifts like digital flowers, and a "Beeline" upgrade for sorting out potential matches -- to boost its engagement rates. It also continued to expand Bumble BFF, its platform for platonic friendships, to lock more users into its ecosystem.

Those efforts boosted Bumble's average revenue per paying user (ARPPU) 5% year-over-year to $29.18. The Badoo and Other segment's ARPPU also improved 6% to $13.51 even as its total number of paid users declined.

As a result, Bumble's total ARPPU grew 14% to $22.76. That's much higher than Match's comparable revenue per payer (RPP), which increased just 6% year-over-year to $16.00 in its latest quarter.

Bumble still faces near-term headwinds

Bumble's growth indicates it's carving out a defensible niche against Match's formidable army of dating apps, and its female-oriented approach could catch on across other overseas markets.

However, it also expects the Ukrainian conflict and currency headwinds (from a strengthening dollar) -- which were both factored into its current guidance -- to reduce its revenue by up to $48 million for the full year.

The company also expects a mandatory billings change at Alphabet's Google Play to shave two percentage points off its adjusted EBITDA margin for the full year. Excluding that impact, Bumble's adjusted EBITDA margin would have stayed roughly flat at about 27% this year.

The valuations and verdict

Analysts expect Bumble's revenue and adjusted EBITDA to rise 22% and 12%, respectively, this year. Based on those expectations, the stock trades at three times this year's sales and 13 times its adjusted EBITDA.

Match, which is growing at a slightly slower rate than Bumble, trades at five times this year's sales and 16 times its adjusted EBITDA. Therefore, Bumble looks a bit undervalued at these depressed levels. I don't think it's a screaming buy yet, since there are plenty of other quality stocks on sale right now, but it could be worth nibbling on as a turnaround play.