Is It Too Late to Buy Bumble Stock?

Shares of Bumble (BMBL 0.72%) sank 8% on Aug. 9 in response to its second-quarter report. The online dating company’s revenue rose 18% year over year to $260 million and surpassed analysts’ expectations by $3 million.

It posted a net profit of $7 million, compared to a net loss of $3 million a year ago, while its adjusted earnings per share of $0.05 cleared the consensus forecast by $0.02. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 23% to $67 million, or 25.9% of its revenue, compared to 25% of its revenue a year earlier.

Bumble also slightly raised its full-year revenue outlook, from a range of 16% to 19% growth to a range of 17% to 19%. And it reiterated its goal of expanding its full-year adjusted EBITDA margin by “at least 100 basis points” from 25.1% in 2022.

Those growth rates all looked healthy, but a few concerns about its rising operating expenses and stiff competition from Match Group (MTCH -0.74%) prevented the bulls from rushing back. Let’s review those issues and see if it’s too late to buy Bumble’s stock.

Bumble continues to bloom in Match’s shadow

Bumble’s namesake app carved out a niche in the online dating market by letting its women make the first move. It ended the second quarter with 2.46 million paying users, which was up 28% from a year ago and 6% from the first quarter.

Bumble also owns Badoo, an older dating app which is more popular in Europe and Latin America, and Fruitz, a French Gen-Z dating app that it acquired in early 2022. Its Badoo and Other segment ended the second quarter with 1.18 million paying users, which represented 7% growth from a year ago and 4% growth from the first quarter.

Data source: Bumble.

Bumble, Badoo, and Fruitz all face fierce competition from Match’s Tinder. But Bumble still grew its total paying users by 21% year over year and 5% sequentially in the second quarter. By comparison, Tinder’s total number of payers declined 4% year over year and dipped 2% sequentially to 10.5 million in the second quarter.

It’s encouraging to see Bumble grow faster than Tinder, but Match’s smaller dating app Hinge is still an emerging threat. Hinge’s number of payers exceeded 1 million at the end of 2022 and grew 24% year over year to 1.2 million last quarter.

But Bumble’s expansion could be costly

Bumble is still growing in Match’s shadow, but a lot of that growth has been driven by its overseas expansion. That strategy is reducing its average revenue per paying user (ARPPU) because it charges lower fees in most of its newer markets.

Badoo’s ARPPU has also been declining as it loses its pricing power against Tinder and other apps. As a result, Bumble’s total ARPPU declined 1% year over year to $23.23 in the second quarter and decelerated from its 1% growth in the first quarter. The Bumble app’s ARPPU dipped 3% year over year to $28.21, while its Badoo and Others ARPPU fell 5% to $12.83.

As Bumble generates average lower revenue per paying user, it’s ramping up its marketing efforts to pull users away from Tinder, Hinge, and other leading dating apps. Nevertheless, its 22% year-over-year revenue growth in the first half of 2023 still easily outpaced its 14% increase in total operating costs and expenses.

But during the second-quarter conference call, Bumble’s management suggested its marketing costs could climb in the second half of the year. CEO Whitney Wolfe Herd said that several overseas markets, such as France and Germany, had “become more competitive due to these elevated marketing spends from some industry players.”

That warning likely rattled the bulls, because it meant Match was ratcheting up its marketing efforts to throttle Bumble’s overseas expansion. As the underdog, Bumble could struggle to keep up since Match already spent more than twice as much money on its selling and marketing expenses than Bumble in the second quarter.

Is it too late to buy Bumble?

Bumble has an enterprise value of $2.5 billion, which is just two times the sales it expects to generate this year. Match has a much higher enterprise value of $15.8 billion, which values it at nearly five times this year’s sales. Yet Bumble is still growing a lot faster than Match, which is expected to only generate 7% sales growth this year.

Therefore, it seems like Bumble is still an undervalued growth stock. Its near-term margins might be squeezed by a pricing and marketing war against Match, but it could still be a good bet on the online dating market’s long-term growth.