Where Will Bumble Stock Be In 1 Year?

Bumble's (BMBL 0.67%) stock fell 9% on Aug. 11 after the online dating company posted its second-quarter earnings report. Its revenue rose 18% year over year to $220.5 million, beating analysts' estimates by $1.1 million. Its net loss narrowed from $7.1 million to $4.4 million, or $0.03 per share, but still missed the consensus forecast by two cents.

For the full year, Bumble expects its revenue to rise 20% to 21%, compared to its prior forecast for 22% to 23% growth. That softer guidance spooked the bulls, but is its stock finally bottoming out after dropping nearly 30% below its IPO price? Let's review Bumble's main challenges, whether it can overcome them, and whether its stock can regain its mojo over the next 12 months.

Image source: Getty Images.

What happened to Bumble?

Bumble initially gained a lot of attention because its eponymous app let women make the first move, and its founder and CEO Whitney Wolfe Herd previously co-founded Match's (MTCH -1.69%) Tinder.

However, Bumble also owns an older dating app called Badoo, which was founded in Russia but headquartered in London. Badoo is more popular in Europe and Latin America, but it has struggled to keep up with Tinder and other dating apps in recent years. To offset Badoo's slowdown, Bumble acquired the French dating app Fruitz in the first quarter of 2022.

But over the past year, Bumble's "Badoo and Other" unit continued to lose paying users, even after adding Fruitz to the segment. It increasingly relied on its namesake app to offset those declines.

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

Bumble's total paying users only rose 3% year over year to 3.02 million in the second quarter. By comparison, Match's total number of payers increased 10% year over year to 16.4 million in the second quarter.

Robust revenue growth per user

Bumble's slower user growth is worrisome, but it's still squeezing more revenue out of its users than Match. Its total average revenue per paying user (ARPPU) increased 13% year over year to $23.65 in the second quarter, while Match's comparable revenue per payer (RPP) grew just 3% to $15.86.

Within that total, Bumble's namesake app still generates much higher ARPPU than either Badoo or Fruitz. Bumble's ARPPU rose 2% year over year to $29.38 in the second quarter, while its Badoo and Other segment's ARPPU grew 6% to $13.60. Bumble attributed the steady growth of its namesake app to market share gains, its overseas expansion, and a broader post-lockdown recovery in dating apps.

During the second-quarter conference call, Wolfe Herd said Bumble's "unique brand and trust with our users, especially women, combined with our leadership and product innovation, is what's driving our success in the face of overlapping macro challenges."

Headwinds for its top- and bottom-line growth

Bumble's reduced full-year revenue guidance mainly reflects the effect of the Ukrainian war on Badoo's growth in Europe and the headwinds from a stronger dollar. However, its margins are also under a lot of pressure. Bumble expects its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin to decline from 27.1% in 2021 to between 24.5% and 25% in 2022.

It mainly attributes that compression to a new billing mandate from Alphabet's (GOOG -2.42%) (GOOGL -2.20%) Google, which went into effect on April 1 and requires all apps to start using Google Play to process all of their in-app payments, instead of other services. This means Bumble can no longer direct its users toward other payment services to avoid Google's 15% cut of subscription revenues.

So where will Bumble be in a year?

Analysts expect Bumble's revenue to rise 21% to $927 million this year, then grow another 23% to $1.14 billion in 2023. They expect its adjusted EBITDA to rise 11% to $229 milion this year, and grow 31% to $299 million in 2023 after it laps the initial effect of Google's billing mandate.

Based on those expectations, Bumble's stock trades at four times this year's sales and 18 times its adjusted EBITDA. Match, which is generating much slower revenue growth than Bumble, trades at six times this year's sales and 17 times its adjusted EBITDA.

Bumble's stock looks fairly cheap at these levels, and three of its main challenges -- the Ukrainian war, a strong dollar, and Google Play's billings mandate -- aren't related to the underlying health of its core business. Badoo's ongoing loss of users is worrisome, but it should be able to offset those declines by continuously expanding Bumble's main app instead.

Assuming Bumble can achieve its revised targets for 2022 and continue to grow in 2023, I'd expect its stock to at least return to its IPO price of $43 within the next 12 months. But if it cuts its guidance again, I'll need to revisit that thesis.