Better Online Dating Stock: Match Group vs. Bumble

Match Group (MTCH 1.61%) and Bumble (BMBL 0.33%) are two of the market's top online dating stocks. Match, which dominates the fragmented industry, owns Tinder, Hinge, OKCupid, Meetic, Plenty of Fish, and other niche dating apps. Bumble, which was founded by Tinder co-founder Whitney Wolfe Herd, lets women make the first move on its namesake app. It also owns the older dating app Badoo and the Gen Z-oriented dating app Fruitz.

When I compared these two stocks in August 2021, I concluded that Bumble's stronger growth made it a better buy than Match. But since then, Bumble's stock has declined nearly 60% as Match's stock tumbled more than 70%. Both stocks lost their luster as the macro headwinds throttled their growth and rising interest rates compressed their valuations. But could Match and Bumble make a comeback this year? Let's compare their business models, growth rates, and valuations to decide.

Image source: Getty Images.

What happened to Match?

Match's growth in total payers, revenue per payer (RPP), and total revenues all decelerated over the past year. That slowdown was caused by macro headwinds, which broadly reduced consumer spending on dating apps and dates, and the effect of the strong dollar on its overseas revenue.

Data source: Match Group. YOY = Year-over-year.

Tinder, which accounted for more than two-thirds of Match's payers in the fourth quarter, continued to gain new paying users throughout the year -- but that growth was offset by currency headwinds, which repeatedly reduced the app's RPP. Match believes that Tinder's growth will accelerate again this year as it launches new features for the app and the macro situation improves, but CEO Bernard Kim admitted that turnaround might "take a few quarters" during the latest conference call.

Match expects its revenue growth to stay roughly flat year over year in the first quarter to rise 5% to 10% for the full year. However, the company expects its operating margins to remain stable throughout 2023 as it optimizes its spending and allocates more of its marketing spending from lower-growth apps toward higher-growth ones like Hinge. Analysts expect its revenue and earnings to increase 7% and 70%, respectively, this year.

Looking further ahead into 2024, Match, Bumble, and other mobile apps should benefit from lower fees on Alphabet's Google Play and Apple's App Store. Those reductions -- which will be made in response to persistent pressure from developers and government regulators -- should boost their long-term gross margins.

What happened to Bumble?

Bumble faced many of the same headwinds as Match over the past year. However, it still grew its total paying users, average revenue per paying user (ARPPU), and total revenues at significantly faster rates than its larger competitor.

Data source: Bumble.

Bumble's namesake app, which accounted for 65% of its total paying users in the fourth quarter, continued to gain new users but struggled with declining ARPPU. That reduction was caused by unfavorable currency headwinds and an increased mix of lower-revenue markets. Nevertheless, Bumble's growth consistently offset the ongoing loss of paying users at Badoo, which is more popular in Europe and Latin America. The inclusion of Fruitz, which it acquired a year ago, in its "Badoo and Others" segment hasn't stabilized that smaller business segment yet.

During its latest conference call, CFO Anu Subramanian predicted the Bumble app would experience "another strong year" as it rolled out new features and expanded into more overseas markets, and that Badoo was "on a path to recovery" as it faced easier comparisons to the geopolitical challenges (especially in Russia) and currency headwinds throughout 2022.

Bumble expects its revenue to rise 13% to 15% year over year in the first quarter, and to increase 16% to 19% for the full year. But unlike Match, Bumble posted a net loss on a generally accepted accounting principles (GAAP) basis in 2022. Analysts expect its revenue to rise 17% this year as it returns to profitability.

Bumble is still the better buy

Bumble trades at 88 times forward earnings. That makes it initially seem a lot pricier than Match, which has a forward price-to-earnings (P/E) ratio of 20. However, Bumble's P/E ratio could quickly cool off as its profitability improves.

It's also cheaper than Match relative to its sales growth. Based on their enterprise values, Bumble and Match trade at about three times and four times this year's revenue, respectively. Since those price-to-sales ratios are so similar, it makes more sense to buy the higher-growth company instead of the slower-growth one. Therefore, Bumble's stock might remain volatile over the next few quarters -- but I still believe it's a better long-term play on the online dating market than Match.