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The Bumble S-1: What’s all the buzz about?

We are traditionally filled with enthusiasm for change in the new year. Some people look to change their habits. Others pursue bigger pivots: a new job, a move to a different location, or — for many — a new relationship.

So, it was particularly well timed that Bumble Inc, the creators of the female-first dating app by the same name, filed its S-1 for IPO on January 15th 2021. January has long been considered peak season for online dating. In fact, a couple of years ago Bumble’s competitor, Tinder, declared the 14th and 15th January as its peak days for sign-ups*.

No doubt Bumble Inc. hopes for the same success that it purports to facilitate for its lovelorn users and according to rumours, this is on the horizon. Here, I take a closer look at the Bumble Inc. journey to date and what is revealed in the S-1.

Contents

  • The dating app market
  • How Bumble came to be(e)
  • Bumble Inc. today
  • The future of Bumble
  • …So?

The dating app market 💔

Dating apps are all the same when you look under the hood.

One of the more curious aspects of the dating app market is the lack of meaningful product innovation, since the Tinder Swipe took the world by storm. When you look into it, most apps are very similar.

Take monetisation for example. The majority make money via a mix of a freemium model, in-app purchases, and a touch of advertising. Users are able to access the core product for free but the more enticing features are stashed behind a pay-wall, accessible via a subscription or one-off payment. Whilst as a genre the dating app revenue model has been brilliantly refined (and I believe are some of the best at understanding purchases that manage emotional risk), there is very little that specific apps have done differently to each other.

To share another example, the matching algorithms. These are typically based around the same concept as chess rankings, albeit with a few touches of geography and personal preferences thrown in. The theory runs that matches are more likely to occur between similarly attractive people. To work this out, everyone is given a score, which is calculated off the number and ratio of swipes left and swipes right that you receive. However, not all swipes are created equal; a yes from someone who is already on a high ranking (i.e. attractive) carries more weight than an regular Joe and will bump you up the leagues faster.

If you want to dive into this further, I recommend either watching Netflix’s The Queen’s Gambit or reading this Vox article to learn more, depending on whether your interest is in the chess or dating part respectively. Again, whilst a really interesting subject to dive into, the algorithm principles differ only in small ways from app to app.

If it’s all the same, how does a company stand out?

Well, in my view, the homogenous nature of this space has created the conditions for Bumble’s initial success. When a market is devoid of consequential product change, brand is pretty much the only place that companies can differentiate themselves. And, it turned out that Bumble was very good at this.

Bumble stood out by conspicuously focusing on its female users.

Even though all heterosexual dating by definition involves a man and a woman, Bumble managed to build a multi-billion-dollar dating brand by actually caring about their female users. It is a women-first dating brand.

From the Bumble Inc. S-1

Bumble’s brand positioning was — and is today — the antithesis of most dating apps. They stood out from the beginning and I believe this a key component of their popularity and resulting growth. By being decidedly XX-first, it promised a more respectful, female-centric experience.

In the early days, this positioning was communicated via a defining feature of Bumble the app: that women were the only ones able to make the first move and initiate conversations (N.B. only in heterosexual matches). Later, as the company developed, this ethos has been reinforced more holistically. For example, the board is over 70% women; a rarity for a company about to go public. Bumble is apparently both talking the talk and walking the walk:

In the S-1’s letter from Whitney Wolfe Herd, the founder and CEO, she shares how this strategy (which remember is basically them focusing on ~50% of the entire single global population) was criticised by many:

“Throughout the journey of building Bumble, we were told that it was impossible to create a successful women-first brand and platform. That women don’t, won’t, and shouldn’t speak first. That it would never work.”

If it were not for the multi-billion-dollar exit, it would be slightly depressing.

However, Bumble the app is only one part of Bumble Inc.

If this were the whole story, it would be so much simpler. But it’s not. Because Bumble the app is only half of Bumble Inc. the corporation — there is actually another app called Badoo that contributes ~40% revenue to the group. And, more so, Bumble Inc. was not always the corporation. And more so to that, the corporation did not exactly always have such clear cut, female-centric values.

…So, what’s the story here?

How Bumble came to be(e). 🐝

Bumble started as the quasi-offspring of Badoo, inspired by Tinder.

Badoo is the other app, the other half of Bumble Inc. It was founded in 2006 by Andrey Andreev and is one of the OG dating apps. It saw fast growth, peaking — I would say — around 2013–2015, at which time it was reported to have 200 million users and the same number of dollars in annual revenue*.

From the Bumble Inc. S-1

In the midst of this success, in 2014, Andreev saw the opportunity to keep building in this market. He teamed up with Whitney Wolfe Herd to create a fresh dating app, using both of their experience. Although today Badoo is secondary to the Bumble brand, it was a giant then.

Wolfe Herd was fresh from splitting with Tinder, where she was a co-founder. Frankly, the reasons for her leaving have been well covered so I’ll skip that here. Both Wolfe Herd and Andreev had experience in building successful brands in this space but, saliently, she had a motive and he had financial and technical resources.

And so it was that Bumble launched in late 2014.

Ownership was split 20/80 respectively and Andreev provided the early funding. Later, as more dating app brands were built out — e.g. Chappy and Lumen — the parent company MagicLab was created, of which Andreev was CEO.

It was doing well. Badoo was still seeing success. The new apps were gaining ground. Bumble’s star continued to rise. However, there were issues brewing, in particular the company culture.

There was a conflict between the Bumble brand and how its parent company operated.

In July 2019, Forbes published a pretty damning report alleging how the party-culture of MagicLab had gone down a problematic path with a particular flair for misogynist behaviour. The irony of Bumble’s coexistence was well noted. The bigger corporation was allegedly “hostile and discriminatory toward women” and for a long time had turned a blind eye to wild company after-parties where prostitutes were the norm. Whatever your view on the ‘grey area’ in the story, the number of women, who worked at Badoo, and were happy to be named publicly alongside their damming quotes certainly gives you pause.

The requisite internal investigation followed and Wolfe Herd denied any knowledge of such issues in the article. However, 6 months later, when Blackstone invested at the aforementioned $3 billion valuation, they also made a series of changes to the company, notably re-positioning the parent company as Bumble Inc, acquiring Andreev’s stake, and replacing him with Wolfe Herd as group CEO*.

Maybe it was best to get a clean break; maybe the report was all true. Either way, it was a crack in the Bumble vision and values that they needed to remove. The shift was also an early indication how the Bumble brand was already seen as the strength and future of the wider company.

Bumble Inc. today 💛

Bumble Inc. is a tale of two apps

There are two main apps driving the company: Bumble and Badoo. There are references to other apps within the organisation but they are grouped under the Badoo metrics in the S-1.

A quick overview of what is on offer: Bumble is split into three different ‘matching products’: For those looking for love — Bumble Date, for those looking for friendship — Bumble BFF, and for those looking for colleagues — Bumble Bizz. Of the three, the dating product is the core functionality that is used. Badoo is a dating app only.

Bumble drives more revenue and growth but Badoo is still a big hitter.

I’ve taken the metrics and re-organised them to give us some comparables below. What we see is that although Bumble the app drives more revenue, Badoo is still a core part of Bumble Inc.

Bumble vs. Badoo — metrics comparison
Bumble vs. Badoo — 9-month 2019 and 2020 revenue comparison.
  • Despite the focus on Bumble in this S-1, Badoo remains the larger app in many ways. The first table shows that it has more than twice Bumble’s monthly active users (MAUs) and slightly more paying users.
  • However, what is clear from here is that Bumble is monetising its user base more effectively. This is shown in both the average revenue per paying user and revenue comparison of the two apps in this 9-month time period in 2019 vs. 2020.
  • For both apps, revenue growth remains strong from 2019 into 2020. This is notable as the 9-month period for 2020 is both post-restructuring (from the Blackstone investment) and during the global COVID pandemic, which placed considerable restrictions on meeting others compared to normal life.
  • This growth is overwhelmingly organic. Later in the S-1, it’s noted (not shown in tables above) that “only 22% of new users across our apps came from attributable performance marketing in the nine months ended September 30, 2020” i.e., the same time period looked at here. This demonstrates sustainable growth, not driven by paid marketing, that we can reasonably expect to continue into 2021.

The valuation is rumoured to be at least double what Bumble Inc. was at 1 year ago.

Although pricing is not yet confirmed, Bloomberg reports that a $6 billion to $8 billion valuation is expected. To put this in context, a year ago Bumble Inc. was valued at $3 billion as part of the Blackstone investment and subsequent reshuffle.

To compare the potential valuation, let’s look at the Match Group IPO from a few years back (Bumble’s biggest competitor, whose portfolio includes Tinder). I will point out now that some metrics have slightly different definitions, so take the comparison below with a pinch of salt!

Many of Bumble Inc.’s metrics are not as strong as Match Group’s were for their IPO.

All metrics are from time of IPO — Match Group went public in November 2015.

  • IPO: Match Group floated at a valuation of $2.9 billion*. At the reported $6 billion to $8 billion, Bumble Inc. hopes to be valued at twice that.
  • MAUs: Match Group reported 59 million MAUs compared to Bumble Inc.’s 40.7 million MAUs. So, Bumble Inc. represents around 69% of Match Group’s regular user base at a comparable point.
  • Paid members: This is an area where definitions are not perfectly aligned but for approximates — Match Group had 4.7 million paid members vs. Bumble Inc.’s 2.4 million, i.e., Bumble Inc. has about half the number of converted users.
  • 9-month revenue: Looking at a comparable 9-month period (each ending about 6 months before the S-1 publication), we can see that Match Group reported ~$722m vs. Bumble Inc.’s ~$430m. Considering that Bumble Inc’s revenue is actually only ~59% of Match Group’s from a comparable point, it actually hasn’t monetised as well in this period.

On the surface, this is not encouraging. Looking at the precedent in this market, one argument is that Bumble Inc.’s valuation is high when compared to Match Group’s IPO. However, there is another point of view to consider: perhaps Match Group was undervalued then, instead of Bumble Inc. being overvalued now…

Since their IPO, Match Group’s revenue has increased by ~2.4x but their valuation has increased by ~12.7x.

Match Group initially listed at a valuation of $2.9 billion.* As shown below, the share price remained relatively steady for a few years until starting to grow notably from 2017 (personally, I would attribute a significant part of this growth to Tinder’s growth within the company).

Match Group share price — since IPO

As of time of writing, Match Group had a market cap of $36.82 billion. This gives a new angle to the Bumble Inc. valuation, as we see in the table comparison below.

9-month revenue comparison for 2020

At the proposed valuation, Bumble Inc.’s post-IPO valuation is approximately 16x its 9-month revenue. For Match Group, the same multiple is approximately 20x.

While this ratio can only be used as a rough comparison, for me, it indicates that Bumble Inc.’s is more in line with how investors view the market today. There are also other factors to take into account: there have been multiple notable tech IPOs in the last year; this may have improved the market context for this type of stock. Of course, we’ve also been going through a pandemic, where finally the end is somewhere in sight this year given the vaccine breakthroughs. Perhaps investors believe that when lockdown ends there will be a gold-rush of dating.

Ultimately, we can look at all the metrics we like but a valuation is only as good as someone is willing to pay. And you can’t put a price on love, right?

However, a big part of a valuation is about what the future potential is for the company. This is not totally clear in the S-1.

The future of Bumble 🔮

Bumble Inc. doesn’t know what it wants to be when it’s older

Getting to IPO is an incredible achievement in and of itself. Unfortunately, from the perspective of public investors, it’s just the beginning. The big question is how to grow from here?

Reading through the S-1, there is a tension between how Bumble has been positioned to date and what Bumble Inc aspires to be. The question comes down to this: is Bumble Inc.’s long term vision to be a dating brand or a global women’s brand? Honestly, I’m not clear and I think that’s an issue.

Let’s look at them one at a time. First, is it a dating brand?

There’s a lot of evidence for this argument in the document. Indeed, the document reads “Our goal is to create meaningful connections and healthy relationships for everyone.” Elsewhere, it talks about how the “long term vision is to be the platform to meet new people, no matter who you might be looking for, whichever life stage or situation you’re in… We will continue to build into platonic, professional, and other areas of connection, which has always been core to our mission” For me, this very clearly defines that they are playing in the dating and relationship industry first.

However, they also imply that they want to be perceived primarily as a female-centric brand.

For example, “We believe Bumble Inc has the potential to become a preeminent global women’s brand that will continue to support our communities on their relationship journey on and off our platform.” This is later referenced in how they refer to it as “a successful women-first brand and platform.“ To me, this sounds like a women’s brand and business first.

The two possible ‘definitions’ of the company offer two very different growth paths.

I know, it feels super pedantic, but I’m obsessing about this for a few reasons:

  1. It defines their industry focus and therefore growth potential:
  • A dating and relationship company that is female-first would be expected to launch new products focused on relationships — social apps, networking clubs, female-centric recruitment, etc.
  • A female-first company that has started with a dating app but is not defined by that would be expected to launch new products focused on reimagining-services for women — female-centric insurance, female-centric investing, female-centric media.

2. Great growth companies have razor sharp focus and a clear roadmap. This document is intended to communicate this to potential investors. I’m pretty sure that an S-1 goes through a *few* reviews to say the least. My guess would be that this confusion in this document reflects internal confusion or internal conflict about this subject.

My take on this is that Bumble Inc. wants to be the definitive women-led brand and that this is trying to build a bridge between where they came from and this ambition. From a commercial perspective it makes sense: it would enable them to become a far bigger company, building into multiple different sectors a la Amazon. Happily, for them (and somewhat sadly for women everywhere), being women-first is still a differentiated, defining brand positioning on this scale.

I also think this is because the following from the S-1 hints really heavily at it: “so many other areas of our lives — health and wellness, travel and leisure, consumer, and finance decisions — are fuelled by our relationships. We believe we have permission to grow into these categories with our communities over time.”

‘Believing you have permission’ in itself is at odds with the wider message. Bumble is a brand centred around women not asking permission. I would have loved to see Bumble Inc tell us that they will move into these spaces, not that they believed they could or felt they had permission. It’s so hard to have confidence in a company that isn’t apparently confident in itself.

The role of Badoo in the future is not clear for either direction.

The other spanner in the works is that Bumble the app, as we saw in the metrics, is only half the company. Badoo although not central to the S-1 is very much a central part of the company’s balance sheet. How does Badoo fit into either brand positioning long term? Again, it’s not tackled in the S-1. The two apps overlap in the internal company structure. They “share insights about user adoption and behaviour, monetization, product and marketing across our entire business”. To be a women-first corporation — whether primarily in dating or not — is most effective when it’s lived and breathed throughout the company, evident in policies, product development, processes. How will this be reconciled with Badoo, which is a very different positioning?

Back to the original question here: how does Bumble Inc plan to grow? In ‘Our Growth Strategies’, there are five strategies listed: 1) Growing users in existing markets; 2) growing users in new markets; 3) product innovation; 4) improving monetisation; and 5) expanding into new categories beyond dating.

The first four are the safe answers that feel well within Bumble Inc.’s reach; the final one represents the truly transformational opportunity for this company but, right now, feels a step too far, with or without Badoo in the mix.

…So? 🔍

In this S-1, Bumble Inc seeks to consolidate many things: its past with its present, the different apps into a coherent whole, Bumble today with the Bumble they want to be. It only partially succeeds in this. Throughout the document, we see Bumble Inc. grapple with the realities of its business meeting the ambition for its future and it handles this relatively clumsily.

To date, it’s been a unique and forward-thinking company in many respects. I hope sincerely that it works out what it wants to be and how it’ll get there. I think it has an opportunity beyond being a dating and relationships company — and this offers truly exciting growth — but this would require serious re-thinking about how it is run today, to meet that potential. Right now, I fear that Bumble Inc.’s heart is big but its ambition is too small.

If you want to chat about anything you read here, you can contact me on phoebe@supernodeglobal.com.

Sources: Metro Online, Tech.eu, FT; Techcrunch, Bumble S-1, Match Group S-1, Match Group Investor Relations

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