Dating apps -- love them or hate them -- are the modern matchmakers for single people. Young people around the globe are increasingly using them, riding the tailwind of smartphone usage over the last 15-plus years.
Most readers are aware of Tinder, the top dating application that revolutionized the industry with its swipe right/left interface. But a second application is now becoming a worldwide dating phenomenon, and its stock just went public in 2021. The app is Bumble (BMBL 2.45%), a fast-growing service focused on giving women power in the online matchmaking game.
Does Bumble stock present a buying opportunity with its shares down almost 80% from all-time highs? Let's investigate.
The Bumble app is a rocket ship
Started by disgruntled Tinder employees, Bumble set itself up in 2014 as an online dating brand that was safe for women. Unlike other dating applications, on Bumble, women have to make the first move when matching with men. This helps prevent bad and malicious interactions that, unfortunately, happen regularly on dating applications. With consistent marketing pushes, this differentiation has led Bumble to become one of the first dating apps women will try when searching for romantic partners.
Frankly, since young men will congregate on any dating app females use, this was a brilliant strategy for Bumble and helped it solve the hardest problem in online dating: convincing early adopters to join your platform. In the early years, usage proliferated throughout the United States and English-speaking markets as downloads grew among women on college campuses.
Now, the app is going global and layering in more monetization products users can buy. Last year, Bumble App revenue grew 31.4% year over year to $694 million. Growth in 2022 was no fluke, either. Bumble App revenue was only $275.5 million in 2019, meaning the company has grown sales at the property by more than 2.5 times in just a few years. With usage growing in multiple international markets, like India and South America, I think Bumble App revenue is set to grow at a high rate for many years to come.
Badoo, not so much
While the flagship Bumble app is an absolute gem, the same can't be said for Badoo, the company's other major dating property. Revenue at the application declined 10% in 2022 to $209 million, a number that hasn't moved much since 2019, when the app's revenue was $213 million. Badoo is losing market share in its core European and Latin American markets and seems stuck in the mud compared to other dating apps like Tinder or Hinge.
Some of this is intentional, as Bumble has expanded its presence in Europe and Latin America, which will likely be a net win for Bumble the company as its namesake app has better monetization tactics and a larger global user base.
However, some of this decline -- especially recently -- can be attributed to Match Group's expansion of Hinge to international markets where Badoo has historically had large user bases. Over the next few years, I think this will position Badoo and its $200 million in annual revenue on the way to obscurity. While not a death knell for the consolidated Bumble corporation, investors must price in this decline when making projections on the stock.
How to value the stock
Since Badoo is well on its way to irrelevance, I think investors should value Bumble stock on Bumble App revenue and its earnings power, as this will drive the company's consolidated earnings power a few years from now.
As mentioned above, Bumble App annual revenue is $694 million and growing quickly. In two to three years, I think this revenue number can hit $1 billion, if not higher, with profit margins of at least 30%, which is a margin hurdle that competitor Match Group consistently achieves.
Revenue of $1 billion and 30% profit margins equate to $300 million in annual profits. Today, Bumble stock trades at a market cap of $3.8 billion, or a forward price-to-earnings (P/E) ratio of just 12.7, based on these estimates. I think this makes the stock a buy at today's prices if you are bullish on the long-term success of the Bumble application.
