IPO Bumble Inc: Break the Ice
I guess many of our readers are a bit tired of endlessly discussing the COVID-19 pandemic consequences, that’s why today we’ll talk about something romantic. Long before the turmoil and self-isolation, mobile apps for online dating became an integral part of our lives. At first, searching for a soulmate in the Internet was something exotic and childish. However, little by little, dates with a person from Tinder or an online dating website became a common phenomenon. There is even an entire market of online dating services with Tinder and Badoo leading the way but their competitors, such as Bumble, are in hot pursuit.
On January 15th, Bumble Inc. submitted an IPO request to the Securities and Exchange Commission (SEC) by the SEC S-1 Form. The procedure will take place at NASDAQ with the ticker BMBL. Let’s discuss how the company is different from its competitors and what its method of conducting business is.
According to the research of Stanford University, up to 40% of straight couples around the globe met online and for same-sex couples, this number exceeds 60%. The Bumble app works the same way as its alternatives: people register, like the users they find attractive, and, if it's mutual, start communicating.
However, the company decided to take an unusual approach after all by giving women the right to start the conversation. If a user doesn’t want to start a dialogue, the contact will disappear in 24 hours. In such a way, Bumble wants to secure women against annoying men by letting them, actually, make the first move. It’s quite important at the time of active campaigns against harassment and gender-based discrimination in the world.
Apart from the love of one’s life, app users can make friends (Bumble BFF) and expand their professional communication, professional interaction (Bumble Bizz). The latter is used by freelancers for getting new assignments.
The company was founded in 2014 by a former Tinder top manager Whitney Wolfe Herd (owns 20% of the shares) and the Badoo founder Andrey Andreev (owns 80% of the shares as the major investor).
Just because Wolfe Herd herself was a victim of Harassment (and she reportedly received from Tinder more than $1 million plus stock as part of a settlement), the Bumble app pays so much attention to protecting women from harassment.
Over the first month since the app was launched, more than 100 thousand people registered in it. At the end of the third quarter of 2020, the number of active users surpassed 42 million in over 150 countries.
The company’s source of earnings is a paid subscription. Communication and contacts in Bumble are free of charge but users can use such built-in paid features as Spotlight and Boost.
Spotlight allows to move up a profile in the list of matches and increase the number of views. Payments are made in the in-app currency called Bumble coins. The cost of a coin depends on the country a user is from.
Boost is a feature with a monthly fee that offers several additional advantages, such as unlimited swipes, backtrack, the ability to extend time on matches, and many others. Users can enable this feature without time limitation.
Spotlight and Boost are available in all three app versions: BFF, Date, and Bizz. The number of paid subscribers exceeds 2.4 million.
Global online dating market
The company’s target market in 2020 was over 803 million lonely people at the ages from 18 to 69 with internet access. According to Pew Research Center, the younger generation mostly postpones marriages or even avoids them. By 2025, the number of lonely people may reach 981 million.
As we can see, the current tendencies of transforming social norms encourage the growth of online dating. In 2020, the number of users registered with different dating services was 190 million people. According to Bumble forecasts, this number may go up to 319 million by 2025. The annual average growth rate is 11%.
In addition to that, one should note another important aspect of this market – the winner doesn’t take all. As a rule, users often use several apps for online dating simultaneously. That’s why even if the company doesn’t become one of the leaders, it will still keep hold of its business segment.
Bumble financial performance
Bumble Inc. didn’t generate profits in 2020, that’s why we’ll focus on analyzing its earnings. According to the report for the SEC, Bumble has had $502.88 million of earnings over the last 12 months.
Over the first three quarters of 2020, the company’s earnings were $376.59 million, which is 3.84% more than in the same period of 2019. Throughout the entire year of 2019, the number was $488.94 million with a 35.78% increase if compared with 2018. We assume that the total earnings in 2020 maybe $507.72 million.
It should be noted that the company’s net profit over the first three quarters of 2019 was $68.63 million, while in 2020 had losses in the amount of $84.12 million. The reason for that was the growth of general administrative expenditures from $47.37 million as of September 30th, 2019, up to $128.12 million as of September 30th, 2020. This might be due to insufficient internal financial control – the company knows the problem and is currently working on resolving it.
Strong and weak sides of Bumble
Major risks of investing in Bumble Inc. are:
- Potential decrease in the number of paid subscriptions.
- Audience nearly always uses competitors’ apps.
- Service popularity depends on accepted social standards and may be affected by political movements.
- It might be difficult for the company to expand its line of paid services because of the market characteristics.
Among the company’s strong sides are:
- Bumble has a strong competitive advantage by giving women the right to make the first step in communicating via the app.
- A strong management team with a lot of successful experience in the industry.
- Proficient marketing in the area of surveying the audience needs.
- Simple and clear business model: a free app with additional paid features.
IPO details and estimation of Bumble capitalization
The company has applied to attract $100 million but we believe that closer to the IPO date this sum may increase. The underwriters of the IPO are leading investment banks, such as Morgan Stanley & Co. LLC, Citigroup Global Markets Inc, Goldman Sachs & Co. LLC, and J.P. Morgan Securities LLC.
To assess the potential capitalization of Bumble Inc., we use the Price-to-Sales ratio over the last 12 months (P/S Ratio). For a tech company with a target market of almost $1 billion people, the range between 10 and 15 is considered as a normal P/S value. Based on the earnings report of September 30th, 2020, the company’s potential capitalization may be from $5 to $7.5 billion.
With all that said, we recommend considering this company for mid- and long-term investments.
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