Online dating specialist Bumble (BMBL 3.25%) has been a publicly traded company for over a year now, but it has not performed particularly well. Some of Bumble's struggles in the stock market are probably attributable to macro-economic issues beyond its control.
Still, Bumble faces company-specific headwinds although there are also good reasons to consider the stock. If the tech company can stage a comeback, those who get in on its stock today will be rewarded down the line. But does Bumble have what it takes to turn things around?
The bear case
Bumble operates its namesake women-centric dating app, and two others: Badoo, which is popular in Europe and South America, and Fruitz. The last of these is a relatively recent addition to Bumble's portfolio. The company closed its acquisition of Fruitz -- a French dating app popular in Europe and Canada -- in February.
While Bumble is one of the most notable names in the online dating scene, it faces stiff competition, particularly from the larger Match Group. Match is the parent company of Tinder, Hinge, and many other dating websites and apps. And although Match Group has many more paying users than the smaller Bumble, the former continues to grow its userbase at a rate that generally rivals, or sometimes exceeds, that of the latter.
Match Group's total paying users increased by 13% to 16.3 million in the first quarter. Bumble's paying users for the quarter grew by 7.1% year over year to about 3 million (not including any contribution from Fruitz).
In fairness, it is Badoo that is having a problem. The app's userbase declined to 1.2 million in the first period, down from 1.5 million reported during the prior-year quarter. The Bumble app saw its paying userbase soar to 1.8 million, 31% higher than the first quarter of 2021.
Badoo's struggles are partly related to macro issues. As the company's CFO, Anu Subramanian, said:
Badoo App, by virtue of the geographic and sociodemographic profile of its user base, continues to be more exposed to macro headwinds, including COVID and inflation. We expect these factors to continue to be a challenge in many of Badoo's core markets in the near term, adversely impacting users' propensity to pay and overall monetization.
Still, the fact that one of its apps is losing paying users is a bad sign for Bumble. What's more, Bumble's revenue growth rate has declined.
Comparatively slow user growth coupled with declining top-line growth rates in the current volatile market doesn't bode well for Bumble's future.
The bull case
There are reasons to be somewhat optimistic about Bumble's future. First, the headwinds Badoo is facing could eventually subside, and when that happens, user growth could pick up for the app. Also, Bumble's most important asset is still its female-centric app that bears its name. The Bumble app allows women to make the first move -- in male-female pairing, only women can start the conversation.
The company hopes that this differentiating factor will continue to attract new users to the app as it aims to grow its ecosystem. The addition of Fruitz will also aid Bumble's overall paying customer growth. This app has unique and attractive features. Fruitz' users are assigned fruits based on the kind of relationship they seek, allowing like-minded people to interact with one another. Fruitz has been particularly successful with Gen Z.
There may be plenty of runway for growth for this app. Furthermore, Bumble's average revenue per user (ARPU) is trending up. In the first quarter, the company's ARPU jumped by 13.9% to $22.76. Both the Badoo app and Bumble app saw ARPU increases in the period. Bumble's total revenue for the quarter increased by 24% year over year to $211 million. The company's net earnings of $23.9 million decreased compared to the net income of $323.4 million reported during the year-ago period.
However, Bumble benefited from a one-time tax benefit of $442 million last year, meaning the year-over-year decline in its bottom line isn't a worry. Overall, Bumble's first-quarter results were solid, and given the potential of Fruitz and the continued strength of the Bumble app, there are signs that the online dating specialist could stage a comeback.
Bumble could certainly turn things around, but the company's Badoo app could become a deadweight on user and revenue growth if current trends continue. The addition of Fruitz may help address these concerns, but the competition from Match is also difficult to ignore. That's especially the case given that Bumble does not seem to be a particularly better value than Match Group right now.
That's even though Match has far more paying users, generates more revenue and profit, and yet it is still rivaling Bumble in terms of revenue and user growth. That's why I am not yet sold on the bull case for Bumble. At this point, investors interested in the online dating space would do better to purchase shares of Bumble's biggest rival.