Bumble Stock: It's So Undervalued That I Just Fell In Love

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Bumble stock is now significantly undervalued with a price/book ratio of 0.69x and a free cash flow yield of 13.5%.Despite stagnating revenue and a declining gross profit margin, Bumble's strong free ...

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That's part of the reason why it has come down so much. But why hasn't it recovered?While the number of paying users on the Bumble app is growing, the average revenue per paying user has been declining. Bumble App Metrics  The same goes for Badoo, another dating app Bumble owns. See below. Badoo App Metrics  Additionally, although it's relatively high, Bumble's gross profit margin has been slowly but steadily falling in recent quarters, going from a high of 74.1% in Q4 2021 to 70.2% in the most recent quarter. This indicates that competitors are hurting its profitability.   Bumble's","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4585":"ETF&股票定投概念","BK4077":"互动媒体与服务","BMBL":"Bumble Inc."},"translate_title":"Bumble股票：它被低估了，我刚刚爱上了它","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BMBL":0.9},"content_text":"Bumble stock is now significantly undervalued with a price/book ratio of 0.69x and a free cash flow yield of 13.5%.Despite stagnating revenue and a declining gross profit margin, Bumble's strong free cash flow generation and buyback potential present a compelling investment opportunity.Bumble's strategic initiatives, including user experience improvements and marketing adjustments, aim to enhance long-term growth despite short-term challenges.The stock's current valuation suggests that the market is pricing in negative FCF per share growth, even though analysts expect a surge in FCF next year.   hocus-focus After falling over 90% from its 2021 high, Bumble (NASDAQ:BMBL) stock is now a deep value stock, trading at 7.4x trailing FCF or 10.7x FCF if you remove TTM stock-based compensation from free cash flow. It's also trading at a price/book ratio of 0.69x. Considering that it's a tech stock and not a cyclical mining company, this is a cheap valuation. My valuation model suggests that BMBL stock is significantly undervalued, even if it sees no free cash flow growth from here. Adding to this, management is committed to repurchasing shares, and at current prices, a boatload of shares can be bought back. Risks include stagnating revenue and declining gross profit margins and average revenue per paying user. Plus, Bumble's competitive advantage isn't all that great. However, I believe the risks are more than priced in at current levels. Therefore, I rate BMBL stock as a Strong Buy. What Happened To Bumble Stock? Bumble went public in early 2021 when tech stocks were in a bubble. That's part of the reason why it has come down so much. But why hasn't it recovered? Part of the reason is that it went from a growth stock (31.3% revenue growth in 2021) to having almost no growth now. See the flattening trend below. Data by YCharts In Q2, its revenue only grew by 3.4%, and its guidance for the full year suggests only 1-2% revenue growth. This also suggests that Q3 and Q4 will see negative revenue growth. Thus, I assume that most growth investors have abandoned the ship, which caused the stock to fall. Now, as the shareholder base changes and becomes more value-focused, there could be an opportunity at hand, especially since the company generates a good amount of free cash flow. But more on that in a bit. First, let's talk about some other problems Bumble is facing. What Other Problems Is Bumble Facing? While the number of paying users on the Bumble app is growing, the average revenue per paying user has been declining. Bumble App Metrics (Q2-2024 Investor Presentation) The same goes for Badoo, another dating app Bumble owns. See below. Badoo App Metrics (Q2-2024 Investor Presentation) Additionally, although it's relatively high, Bumble's gross profit margin has been slowly but steadily falling in recent quarters, going from a high of 74.1% in Q4 2021 to 70.2% in the most recent quarter. This indicates that competitors are hurting its profitability.   Bumble's Historical Gross Profit Margins (Finbox) The problem is that Bumble faces intense competition from Match Group (MTCH), which owns Tinder, Hinge, match.com, and more. Sure, Bumble has carved a niche for itself by focusing on women making the first move, but I wouldn't necessarily call this a strong competitive advantage. If I'm not mistaken, women can also message first on other dating apps (and men can as well). So, at the end of the day, it will come down to which dating platform offers the better experience. Bumble is taking a few steps to improve its platform and business, which I'll discuss below. What Is Bumble Doing To Improve Its Business? Bumble aims to improve its business by balancing its user base, improving the customer experience, and tweaking its revenue strategy. For starters, Bumble is \"prioritizing more robust profiles\" for all of its users, which helps its users—especially women—get better matches. Yes, this can cause friction and push away some users, but the company believes it will improve engagement, and I agree. It can probably also help weed out fake profiles. Further, the company is adjusting its marketing strategy. It will focus on \"experiential and re-engagement marketing strategies\" in established markets while expanding its marketing campaigns in newer ones. Internationally, it owns the dating app Badoo, and it's also seeking advertising opportunities. Next, Bumble laid out plans to enhance the app with new features, such as an AI-assisted photo picker and chat support, while focusing on strengthening safety. Lastly, Bumble is revising its revenue model by slowing down the expansion of Premium Plus and focusing on creating long-term value. In the Q2 earnings call, Bumble's CEO said:   Over time, we'll rebalance Bumble subscription tiers and merchandising in favor of mechanisms that reward positive peer behaviors and support better ecosystem health. As part of this process, we'll slow down certain monetization initiatives in the near term, including the expansion of premium plus. Being more deliberate about how we monetize in the near term does not mean that we see less growth opportunity. It means we're treating unsustainable short-term growth in favor of better connecting customer experiences with long-term growth potential.  Although it's a bummer that short-term growth will slow down, I'm glad that Bumble is focusing on improving the user experience for the long term. Onto The Numbers: Bumble Is A Solid Free Cash Flow Generator What I like about Bumble is that it's actually profitable on a cash-flow basis, and this FCF has been growing over the years, with the exception of the drop in 2020 due to COVID-19. Bumble's Historical FCF (Seeking Alpha) Additionally, Bumble's free cash flow is still expected to grow from current levels. In the TTM period, its FCF is $151.1 million. By the end of the year, analysts (per tikr.com) expect $159.95 million in FCF. Then, in 2025 and 2026, this figure is expected to reach $234.38 million and $226.533 million, respectively. The 2024, 2025, and 2026 forecasts are based on the consensus of four, five, and three analysts, respectively. Per its investor presentation, Bumble expects at least 200 basis points of adjusted EBITDA margin expansion for the full year, which should improve FCF generation. Whether Bumble's business actually improves remains to be seen, but it doesn't even have to do much at the current valuation for the stock to go up, which I'll discuss below. Bumble Is Trading At A Dirt-Cheap Valuation BMBL stock is currently trading at $6.49. In order to show how undervalued the stock is, I used a 10-year reverse DCF valuation to show how much negative FCF per share growth Bumble would need to see to justify its valuation. I even set the terminal growth rate to 1% to factor in almost no long-term growth. I recognize that this is likely conservative, but that's the whole point -- to show how little growth is priced in. I then took its trailing FCF per share of $0.875 (based on a fully-diluted share count of about 172.71 million) and used a discount rate of 12.4% (calculated using the CAPM model). Based on these inputs, my model tells me the BMBL will need to see a FCF per share CAGR of -1.75% over the next 10 years and then rise slightly to 1% growth in perpetuity in order for it to be fairly valued. Of course, this seems pessimistic, especially compared to analysts' FCF estimates that I mentioned above. BMBL Stock Valuation (Author) If Bumble can just grow its FCF per share by 2% per year for the next 10 years, the stock's valuation jumps to $8.24 (27% upside potential). If it can grow by 4% annually before leveling off to 1% perpetually, then the valuation implies 44.5% upside potential (a share price of $9.38). And its FCF yield is 13.5%, which is a great starting yield for a tech stock if you ask me. Even if you remove TTM SBC of $44.3 million from the FCF figure, you get an FCF yield of 10.62%. Buybacks Can Boost The Valuation The valuation already looks good as is, but if you consider the accretive potential of share repurchases, then it gets even better. In the Q2 earnings call, Bumble's CFO said:  Since, the inception of our repurchase program, we have returned $241 million to shareholders representing more than 125% of our free cash flow over that time. Year-to-date, our total share repurchase is $84 million, which represents more than 2.5 times our year-to-date free cash flow of $31 million. At the end of Q2, we had $209 million remaining on our $450 million total buyback authorization. Our strong balance sheet and profitability gives us the financial flexibility to continue returning cash to our shareholders. We remain very committed to our buyback program and continue to believe that buying back shares remains a very good use of our capital. If Bumble believed in share buybacks at around $8 per share (the share prior to the Q2 announcement), then they were probably happy to buy back shares in the $5-7 range in the past couple of months. An extra $209 million remaining on its buyback authorization equates to 18.4% of its current market cap, and the year-to-date repurchases represent a buyback yield of 7.4% for the 6 months. The lower the valuation, the more accretive the buybacks. At an FCF yield of 13.5%, buybacks can significantly boost per-share metrics. The company can use a combination of cash and short-term investments on hand ($286.7 million) and free cash flow that it generates to safely buy back a good number of shares without hurting its balance sheet too much. Further, the stock is trading at a price/book ratio of around 0.69x if you exclude the non-controlling interests part of its shareholders' equity, making the valuation that much better and meaning that it can buy back shares at a price lower than its net worth. And yes, I'm aware that its tangible book value is negative. That's because most of the company's assets are intangible, like goodwill. Still, if a company wanted to acquire Bumble, it would have to pay up for the intangible value the company carries. The Bottom Line On BMBL Stock Bumble stock is not without its risks. The company faces intense competition from Match Group, and it needs to reverse the trend of falling average revenue per paying user and gross profit margins. The firm is trying to enhance the user experience, which can benefit it in the long term but will have a negative short-term impact. Nonetheless, I believe that the risks are worth taking at the stock's current valuation. After all, my valuation model suggests that even 0% FCF per share growth over the next 10 years can present some upside potential. Given that analysts expect a 46.5% surge in FCF next year and that buybacks can be highly accretive at current levels, I don't see why FCF per share can't outpace that over the long term. Additionally, the stock trades at 0.69x price/book and has a high free cash flow yield of 13.5%. Finally, my logic tells me that the stock likely underwent a change in its shareholder base from a growth-oriented one to a value-oriented one, meaning that most of the growth investors are now gone and won't contribute as much to the selling pressure. There just seems to be a large margin of safety with BMBL stock, prompting me to give it a Strong Buy rating.   Editor's Note: This article was submitted as part of Seeking Alpha's Best Value Idea investment competition, which runs through October 14. With cash prizes, this competition -- open to all analysts -- is one you don't want to miss. If you are interested in becoming an analyst and taking part in the competition, click here to find out more and submit your article today!","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2473147110"}