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Bumble IPO: Worth the Buzz?

Matchmaking is a lucrative business. On January 15th 2021, Bumble — the women-centric dating app — filed for its initial public offering (IPO). This filing is set to be yet another successful listing in the booming US consumer tech-led IPO market. Despite Bumble’s niche user base and growing popularity within the online dating space, it is worth assessing how its business model might fare against its major competitor, the Match Group, in the long run.

Deal Overview 

On January 15th 2021, Bumble Inc filed a form S-1 for an IPO with the Securities Exchange Commision to list in the first half of 2021. The company is expected to list on the Nasdaq under the ‘BMBL’ ticker symbol. Bloomberg News reported that Bumble could be seeking a valuation between $6bn to $8bn. Many analysts view this valuation as realistic, particularly given investors’ recent interest in the IPO market. Still, the details and timing of the IPO have not been finalised. Moreover, Bumble has not yet determined the number of shares it will offer in the IPO, pricing, or the number of shares it expects to have outstanding post-IPO.   

In 2019, Blackstone, the private-equity firm, acquired a majority stake in Bumble Holdings (previously called MagicLab), the parent company of both Bumble and Badoo —  a European-focused dating app — valuing Bumble Holdings at approximately $3bn. Since then, the company has seen significant growth and, together, Bumble and Badoo are present in more than 150 countries. Alongside the Blackstone Group and Ms Herd, co-investor Accel is expected to retain voting control following the listing. Bumble Holdings has stated that it plans to use capital raised through the IPO to pay down debt, of over $600m, and repurchase equity interests from private shareholders. 

A dating app with a mission

Bumble was founded in 2014 by Whitney Wolfe Herd, current CEO, after she left Tinder (now the app’s major competitor) to fill, what she viewed as, a gap in the online dating market. As Herd puts it, she wanted to create a female-focused app that would empower women in the dating world. In a letter accompanying the IPO filing, Herd explained that her initial vision remains a huge part of Bumble’s overall mission, namely to “make dating healthier and more equitable around the world, not only for women, but for people across the gender spectrum”. Hence, the main premise of the app is that only women are permitted to ‘make the first move’ once finding a match. Since its launch, women have made 1.7 billion ‘first moves’, and it hosts approximately 30% more female users than male users. Furthermore, Bumble has expanded its platform beyond dating by offering matching services for platonic friendships on “Bumble BFF” and professional connections on “Bumble Bizz”. In September 2020, Bumble BFF monthly active users (MAUs) comprised approximately 9% of the total Bumble app MAUs. Bumble’s mission reflects in the company’s governance; unlike competitors, the majority of its board is made up of women. Moreover, at 31, Herd is set to become one of the youngest female CEOs in tech to float a company on the stock market. Herd’s social media presence also plays a huge role in shaping Bumble’s socially-conscious brand; for example, in 2019, Herd and Bumble helped advocate for a new Texas law outlawing digital sexual harassment. Bumble’s branding is its unique selling point, as its emphasis on gender equality and ‘healthy dating’ sets it apart from rival apps such as Tinder and Hinge, which helps the company retain a niche set of users within a relatively crowded online dating market. 

Bumble and Badoo: performance and financials

Both Bumble and Badoo adopt freemium business models. That is, they allow users to download and use their app for free, but offer special features, such as unlimited swipes, for those willing to pay for the app’s premium offering. Bumble earns most of its revenue from recurring subscriptions and in-app purchases, but also earns revenue through advertising. This is similar to most business models in the dating app space. In its filing, Bumble reported that it had around 42 million MAUs in Q3 2020, including 12.3 million MAUs on the Bumble app and 28.4 million MAUs on Badoo. Its total number of paid users increased 19% year-on-year to 2.4 million during those nine months. The company reported a net loss of $84.1m on revenue of $376.6 m between Jan. 29 and Sept. 30 2020, compared to a net profit of $68.6m on $362.6m in revenue during the same period in 2019. The company attributes this loss to greater transaction costs. However, EBITDA margins have improved slightly, from 18.3% to 20.8% in 2019, and subsequently from 24.1% in Q2 2020 to 33.1% in Q3 2020 due to sustained top-line growth during the pandemic, indicating better cost management. Overall, whilst Bumble’s growth has generally slowed in recent years, the company maintains that it has only tapped into a “fraction of the total addressable market” in North America. 

Source: Wall Street Journal.
Note: Revenue for 2020 is an estimate derived from annualising the company’s first three quarters of results.

Competition in the dating space: the fight for swipes    

This listing will intensify the rivalry between Bumble and its main competitor, the Match Group, which has a market capitalisation of $30bn (and owns a portfolio of digital dating services such as Tinder, Hinge, and Match.com). At present, the Match Group is much larger than Bumble. In Q3 2020, the Match Group reported 10.8 million total average subscribers, with 60% of subscribers being attributed to its most popular app Tinder. Furthermore, in the first nine months of 2020, the Match Group delivered 318% more revenue than Bumble, and roughly $500m more in free cash flow. Having said that, when assessing average-revenue-per-user (ARPU), Bumble fares better; Bumble reported $18.48 in ARPU for the first nine months of 2020, versus $0.62 in ARPU reported by the Match Group.  Although, it is worth noting that Bumble and the Match Group classify “paying users” slightly differently, making the ARPU figure somewhat unreliable in drawing comparisons.  Nonetheless, according to OC&C Strategy Consultants, a higher percentage of the Bumble app’s users convert to paying users than the market average — Bumble boasts nearly 9% paid conversion among its 12.3 million monthly active users. 

Risks and considerations 

Some, such as Laura Forman from the Wall Street Journal, have argued that Bumble’s women-centred strategy is inherently limiting. For example, it is unclear as to how Bumble’s business model will perform in markets beyond cosmopolitan circles in the U.S., as those favouring traditional gender norms might dislike Bumble’s approach. Yet, Bumble is confident in its ability to expand globally —  the company generated 47% of its total sales from outside of North America last year. Others, particularly social scientists (e.g. Pruchniewska, 2020), have suggested that Bumble is not the inclusive feminist utopia it purports to be, and fails to adequately address harassment on its app. It will thus be important for Bumble to address such criticisms in order to mitigate reputational and legal risks down the line. Second, Apple’s upcoming IDFA privacy updates could undermine Bumble’s ability to offer attractive advertising services on its platform, and conduct targeted advertisement to acquire customers for its own app through third-party distribution channels. This could materially impact Bumble’s user acquisition rates and advertising revenue stream. More broadly, given Bumble’s reliance on data to personalise user experiences, greater regulation of data utilisation practices and data privacy could pose serious challenges for Bumble’s business model. Having said that, the latter of these risks is not unique to Bumble and would affect its competitors across the board. What is more pertinent is the sustainability of Bumble’s women-focused strategy in the long run. 

As optimistic as one might be about Bumble’s mission to promote gender equality within the online dating world, Bumble should perhaps consider ways to monetise its platonic friendship and professional networking offerings to ensure its longevity — particularly given Facebook’s recent entry into the dating space. In the meantime, however, Bumble’s unique approach distinguishes itself from competitors in a rather saturated market, and is defined by a vision that is sure to attract millennials to its hive for years to come. 

Sources

https://www.sec.gov/Archives/edgar/data/1830043/000119312521009745/d20761ds1.htm#rom20761_22

https://www.ft.com/content/cb55ad0b-a65a-47b7-8699-c9dbface051b

https://www.cnbc.com/2021/01/15/bumble-ipo-filing-warns-apple-privacy-changes-could-harm-its-business.html

https://edition.cnn.com/2021/01/15/tech/bumble-ipo-paperwork/index.html

https://www.wsj.com/articles/bumbles-bet-on-women-wont-pay-off-everywhere-11611230410?mod=newsviewer_click

https://www.businessinsider.com/read-bumble-founder-letter-ipo-filing-2021-1?r=US&IR=T

https://ashatanwar.medium.com/could-this-bee-the-right-opportunity-to-get-into-the-dating-world-as-an-investor-bumble-s-1-360d738d5bbb

https://www.cnbc.com/video/2021/01/22/bumble-business-strategy-empowering-but-limiting.html

https://www.bloomberg.com/news/articles/2021-01-15/dating-app-bumble-files-for-u-s-initial-public-offering

Pruchniewska, U. 2020. “I Like That It’s My Choice a Couple Different Times”: Gender, Affordances, and User Experience on Bumble Dating. International Journal of Communication, 14, p. 2422–2439.

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