Bumble Has A Revenue Problem Now, With Tinder Back On The Rise (Rating Downgrade)

seekingalpha11-21 01:57

Downgrading Bumble to a sell rating after the company released worrying Q3 results, and a ~60% rally from mid-summer lows.Bumble faces fundamental risks: poor U.S. trends, declining ARPU, niche appeal...

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To me, this requires investors to practice prudent and active portfolio management, as many stocks have reached what I view as ripeness and are ready to be plucked for their recent gains. Bumble (NASDAQ:BMBL) is one such stock. The women-first dating app has seen a strong rebound rally since its post-Q2 earnings crash, and attempted a fresh rally as well after a well-received Q3 earnings report. To me, however, some concerning trends have emerged, which is causing me to rethink Bumble’s place in my portfolio. Data by YCharts I last wrote a buy opinion on Bumble in August, fresh off the stock’s post-Q2 decline, when it dropped to $5 per share. Since then, I’ve netted a fantastic ~60% return on my investment in a short period of time - despite the fact that many of Bumble’s fundamental issues have remained ever-present. To me, this is a great time to pull the plug on this trade, and I’m giving Bumble a two-step downgrade to a sell rating. To me, a slew of new fundamental risks have opened up. In a nutshell, here are what I view as the main red flags in Bumble:   U.S. trends have been poor. The company is still adding users, but the majority of these users are overseas, where pricing is lower (added on top of a strong U.S. dollar which is resulting in a translation drag). This may be a symptom of “dating app fatigue” as well as stiffer competition from rivals like Tinder and Hinge, the flagship apps of the Match Group.  ARPU declines are starting to hit revenue. Bumble’s growth is now fading beneath peers like Match, because its base of users are generating far less ARPU due to the larger mix of international subscribers.  Weaker market position. Bumble lags behind many more popular dating apps like Tinder and Hinge in terms of users. In addition, its subsidiary Badoo is a drag on the company as its popularity fades beneath many more mainstream apps.  Heavily indebted. Unlike many growth tech stocks, Bumble is in a significant net debt position, which limits its financial flexibility to pursue growth options.  In my view, the best move here is to lock in gains on this trade and invest elsewhere. Q3 download Let’s now go through Bumble’s latest quarterly results in greater detail. The Q3 earnings summary is shown below: Bumble Q3 results (Bumble Q3 earnings deck) Bumble’s revenue declined -1% y/y to $273.6 million, only slightly beating Wall Street’s revenue expectations of $271.8 million (-2% y/y). More disappointing, however, is the company’s four-point deceleration in growth from 3% y/y in Q2. The company continued to add paid users in Q3 - but at a slower pace. Adds slowed to 52k in Q3, down substantially from 87k in Q2. And we should note the mix problem as well, with the company adding substantially internationally where subscription rates are notably lower. Primarily as a result of this mix shift, Bumble’s ARPU declined -10% y/y to $25.58. Bumble user counts (Bumble Q3 earnings deck) Meanwhile, we note that rival Match has turned its user statistics around. In Q2, Match lost 89k users (while Bumble gained 87k), but in Q3, Match recovered substantially and regained 373k users. Bumble’s main rival has benefited from a brand reshaping at Tinder, which has launched a campaign dubbed “It Starts with a Swipe” to defray the connotation of the Tinder app as primarily for hookups. Those “turned off” by Tinder’s reputation historically turned to other apps like Bumble, but it seems the brand rehabilitation is helping Tinder to gain more active payers at the expense of rivals like Bumble. Match Q3 metrics (Match Q3 earnings release) We note as well that Match returned to revenue growth, while Bumble’s revenue slipped this quarter. Slightly better news on the profitability front: in spite of revenue weakness, Bumble grew adjusted EBITDA by 10% y/y to $83 million, representing a 30% margin: 3 points better y/y. Bumble adjusted EBITDA (Bumble Q3 earnings deck) The company has benefited by being more selective about its marketing spend. Still, it looks like the unfortunate side effect of this caution is a slowdown in user growth while Match brands have picked up, so over the long haul, Bumble could continue to see deleverage. Valuation and key takeaways The main advantage of Bumble is that, even after the stock’s recent rise, it retains a valuation advantage against industry juggernaut Match and gay dating app Grindr, the only other publicly traded pure-play dating stock. Data by YCharts On both a revenue and adjusted EBITDA basis, Bumble's valuation remains the lowest of the pack.  Still: we have to be cautious of staying invested in Bumble for its value proposition alone, as Bumble’s revenue and user trends are showing signs of deterioration while rivals are gaining steam. In my view, it’s time to get out of this trade early while Bumble is still riding highs from the mid-summer rebound rally.","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":"4.29.2","shortVersion":"4.29.2","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/2485646123"}