The rise of Bumble (NASDAQ: BMBL) began when founder Whitney Wolfe Herd was ousted from her co-founder position at Tinder, part of the Match Group. She won a $1m lawsuit against Tinder for sexual harassment and discrimination, then launched Bumble in partnership with Badoo. Tinder sued Bumble, claiming Wolfe Herd had violated its patents. Bumble countersued, and both companies settled in June last year.
This beginning is relevant because it underpins what makes Bumble different, and why the Bumble share price is undervalued.
Dating with a twist
Bumble changed the rules of dating. After a match, only women can send the first message. This has a two-fold effect. First, women cannot receive unwanted messages or pictures, increasing the app’s safety. Second, it provides a unique space where women can reverse societal gender roles, and men can avoid the normal dating uncertainty. It also has a rapidly growing ‘Best Friend Forever,’ section, where men and women can seek platonic friendships.
The effect of the pandemic is clear. In the UK alone, online dating app usage surged, as “people spent £3.8m, a rise of 5% from the previous quarter.” The app reached over 100m subscribers last year. After its IPO in February, the share price quickly surged to $78 before falling to a more realistic $49 today.
A numbers game
Bumble has a market cap of $9bn, only one fifth of the value of Match at $45bn. This alone shows me that there’s plenty of room for growth for the Bumble share price. It boasted 21.4% of the UK market share as of 30 April.
In its first-quarter earnings, Bumble generated profit of $323.4m, compared to a loss of $88.4m in the same quarter last year. On top of this, paid users also increased 30% to 2.8m. It reported revenue growth of 43% year over year of $170.7m, above the consensus forecast of $164.6m.
Bumble’s revenue rose 36% to $488.9m in 2019, then rose again 19% to $582.2m in 2020. It expects 2021 revenue of between $724m and $734m, an increase of between 24% and 26% compared to 2020.
In short, the numbers are pointing in the right direction for the Bumble share price.
The bull case
The app has growth potential in India where it already has 4m users. Bumble is partnering with Bollywood actress Radhika Madan to increase its exposure, and recently released a survey showing that over two-thirds of Indians say it is possible to fall in love online. This is an impressive statistic from a traditional country.
The share price at the IPO had a price-to-sales (P/S) ratio of 18. At its current price of $49, the P/S ratio is about eight. Short interest in the company is negligible, meaning that larger investors don’t think the company is likely to fail.
However, there are some red flags. Bumble has stiff competition in the European and American markets. As the owner of Tinder, Match is a far larger competitor by valuation. There are dozens of other dating apps that could take the wind out of Bumble’s sails. In addition, the stock has only fallen since its IPO. However, at the current price Bumble share price and potential for scalability, it could make a valuable addition to my portfolio.
