Could This ‘Bee’ the Right Opportunity to Get Into the Dating World (as an Investor): Bumble S-1 Teardown
Bumble, the women-centric dating app, filed for its Wall Street debut on 15 January 2021. The company has seen strong growth since its founding in 2014, and the app has become a saving grace for many as a way of connecting with others during the pandemic (virtually, of course).
In this article, I have aimed to summarise and unpack the key takeaways from the company’s published S-1 and provided my take on an initial valuation target for the company.
The quick take: the opportunity looks attractive assuming a valuation of c.$7 billion, however, points to consider from an investment perspective remain potential to expand into adjacent verticals, achieving consistency profitability and sustained growth of paid users with a premium pricing strategy.
Bumble was founded in 2014 by Whitney Wolfe Herd who was previously a co-founder of Tinder, another dating app. Bumble aims to solve two main societal issues:
(1) Antiquated gender norms
(2) Lack of kindness and accountability on the internet
Unlike existing dating apps such as Tinder, which has a reputation for perpetrating a ‘hook-up’ culture, the Bumble brand puts women at the center of the online dating process, creating a platform which prioritises safety, inclusivity, accountability and female empowerment.
Bumble notes that women are “often the household’s primary decision maker and are estimated to have over $30 trillion of purchasing power globally, yet technology platforms are not being built specifically with women in mind”. Thus, the company believes that there remains an opportunity to build on our foundation as a technology platform “centered on women to become a preeminent global women’s brand”.
Given the above and rising popularity of online dating amid broader societal shifts, including from the #metoo movement, Bumble has carved out a niche for itself as the app where women get to lead and initiate the messages.
As of August 2020, Bumble and Badoo rank among the top five grossing iOS lifestyle apps in 30 and 89 countries, respectively, and have over 40 million Monthly Active Users (MAUs), cementing Bumble’s position as a leader in the fast-growing online dating space.
Bumble operates two apps, Bumble and Badoo, which are now two of the highest-grossing online dating mobile applications globally, and were combined under the Bumble-branded corporate umbrella in 2020.
The Bumble app, where women make the first move, has seen more than 1.7 billion messages initiated by women in the six years from September 2014 to September 2020. The app is the second highest-grossing dating app globally behind Tinder, according to Sensor Tower. Bumble has c.30% more female users for every male user on its platform compares to the gender mix of its competitors.
The Badoo app, a pioneer of web and mobile free-to-use dating, is also aligned with Bumble’s values and markets itself as a place to build meaningful connections and “Date Honestly”. The app is the fourth highest-grossing dating app globally, according to Sensor Tower.
While Bumble leads the charge in the US, Badoo continues to be the market leader in Europe and Latin America.
The Bumble app user journey is split into:
- Setting up a profile when the user joins the app
- Matching with other users based on a matching algorithm and user preferences
- Chatting and communicating with matches (women-led)
Overarching the process are the company’s safety features, including verification and voice and video communication tools which do not require the user to share sensitive personal information before they are ready.
In addition, there are several premium features, split between subscription offerings and in-app purchases for subscribers and non-subscribers. These include:
(1) Subscription offerings:
- Beeline: see who likes you and which potential suiters have already voted yes on the user
- Rematch: rematch with prior matches
- Extend: unlimited extensions on conversations
(2) In-app purchases:
- SuperSwipe: for indicating strong interest for a potential match
- Spotlight: users can use Spotlight to advance their profile to the top of the list for potential matches
- Travel mode: users can change their location to anywhere in the world
- Backtrack: allows users to undo a “no” vote
Beyond dating, the Bumble app launched Bumble BFF (in 2016) and Bumble Bizz (in 2017) to help users develop platonic friendships and professional networks respectively. Although these do not yet generate significant revenues (for instance, Bumble BFF comprises only c.9% of Bumble app MAU), the company believes the formation of a women-focused brand and deep insights into that segment would allow them to extend into all areas of women’s lives.
The Bumble app shares common infrastructure with the other app in the Bumble portfolio, Badoo, which has a similar app user journey split between setting up a profile and matching + chatting.
Badoo’s premium features are limited to a subscription version of the app, Badoo premium, which includes:
(1) Liked you: see which users have already liked you
(2) Extra shows: pushes your profile to the front of the queue
(3) Undo vote: undoes a “no” vote on a potential match
As shown in the exhibit below, online dating is now the most popular way for heterosexual couples to meet, with c.40% of new couples now meeting online. Bumble notes that the market is also driven in part by tailwinds from increased mobile phone penetration, delayed marriage and changing cultural norms around dating and relationships.
OC&C estimates provide indicate that the global dating market currently consists of 190 million MAUs (ex. China) — a market worth $5.3 billion in 2020. This is expected to grow at a CAGR of 13% to $9.9 billion by 2025, representing favourable growth potential for Bumble’s market.
The company has built and maintained its position as a market leader and kept on the front foot with changing expectations of the online dating market by innovating and leveraging its first-to-market advantage as the first app to:
- Introduce automated photo verification as a safety feature (2016)
- Launch in-app video chat (2016)
- Leverage machine-learning capabilities to blur unsolicited lewd images (2019)
Bumble notes that it sees “significant upside in our core online dating market driven by the steady growth of the global singles population, increasing adoption of online dating both in the United States and globally and increasing propensity to pay for online dating”.
Importantly, the company does not consider this a “winner-take-all” market given users tend to use multiple dating platforms.
The Bumble and Badoo apps both have a freemium model where all users can download and use the apps for free and users can choose to pay to upgrade to a subscription offering or to get access to in-app premium features, as outlined above.
Both apps currently offer subscription plan offerings as 1-day, 7-day, 1-month, 3-month, 6-month, or lifetime packages. Almost 90% of Bumble App and 85% of Badoo App Paying Users in the 9 months ended September 2020 were subscribers of one of these subscription plans. This business model is in line with the standard models used by competitors and with the freemium model expected to be the primary driver of increased penetration of online dating, Bumble is well placed to ride this wave.
The company’s pricing is at the premium end of the market for a freemium model, with a $32.99/month cost for the Bumble app’s most popular subscription plan versus $4.99/month and $14.99/month for Tinder’s Tinder+ and Tinder Gold monthly plan respectively, and $9.99/month for OkCupid’s A-list subscription, according to Money.com. Although the Bumble brand has allowed the company to charge a premium, continued competition from dating websites and expansion abroad is likely to push pressure on this, leading the company to eventually choose between maintaining their prices or reducing the price as a way of converting more customers to the paid version of the app.
As with other dating sites, paradoxically the success of the platform depends on its ability to help users find successful relationships and leave the app. Therefore, Bumble users would naturally be expected to churn. Although the statistics are outdated, the company’s weekly churn rate was previously estimated to rank in line with Tinder, according to SurveyMonkey Intelligence. Bumble’s successful transition to a holistic friendship and networking app could help reduce this over time.
The company has grown its community by positioning Bumble and Badoo as distinct brands with sustained, complementary values. The community growth relies primarily on an organic acquisition model and word-of-mouth led growth.
The company’s sales and marketing spend has increased 53% to $142 million in 2019 to support its brand marketing growth across all channels, but the spend has stayed broadly stable as a percentage of revenue (26% to 29%). Bumble’s attributable performance marketing accounted for a mere 21% of its total user acquisition in 2019, and its payback period on user acquisition costs averaged < 3 months in the 9-months ending September 2020.
Business performance and financials
The company generated revenue of $488.9 million for the year ending 31 December 2019, representing strong year-over-year growth of 35.8%, however, on a quarterly basis, the revenue performance has been more muted until COVID-led acceleration in the six months from March 2020.
It is worth noting that it is difficult to ascertain a strong quarterly trend given the restructuring of the company went through pre-IPO to form Bumble Holdings as a separate vehicle for the IPO.
In the year ended December 31, 2019 the company finally turned a profit of $85 million — an ever more important milestone for investors in today’s unpredictable economic climate.
I expect the company could continue its profitable trend given the growth in paying users. However, FY 2020 is likely to see a one-off loss due to general and administrative expenses, which have doubled from $67 million for the year ended December 31, 2019 to $128 million for the “Successor” period from January 29 to September 30, 2020.
This is partly due to the $48.2 million of transaction costs in the period from January 29, 2020 to September 30, 2020 “incurred by the Predecessor associated with the Sponsor Acquisition were approximately $40.3 million and were included as an assumed liability by the Company at closing”.
The average revenue per user (ARPU) has seen significant year-on-year growth of 25% between 2018 and 2019, however, on a comparative 9-month period between the 9-months ended September 2019 and 9-months ended September 2020 the company has seen a slight decline in the ARPU. Despite the slight decline, if the company can maintain its ARPU as it scales, it could improve its profitability metrics further.
In any case, Bumble’s paid users rose 49% to 855,600 in 2019 for the Bumble app despite the Badoo app seeing a smaller increase of 9% to 1.2 million in 2019. Both apps grew strongly in the 9 months to September 2020, with the Bumble app and the Badoo app seeing growth of c.30% and c.10% to 1.1 million and 1.3 million respectively.
The company has also seen EBITDA margin improvement from 18.3% to 20.8% in 2019 and has made stronger strides during the pandemic from 24.1% in Q2–2020 to 33.1% in Q3–2020, with the robust improvement indicates better cost management with sustained top-line growth.
If we consider Bumble amidst the broader consumer social landscape using data from Public Comps, the company falls in the median position in terms of FCF % (as a percentage of revenue) — it has the opportunity to make its way towards the leading companies, however with Facebook’s advertising prowess, and Match Group’s more mature portfolio of brands, Bumble is certainly holding its own.
Blackstone acquired a majority stake in MagicLab, the owner of Bumble and Badoo in November 2019, valuing the company at approximately $3 billion.
Match Group is widely believed to have converted its options in Tinder at a $3 billion valuation in August 2017, when the app had 50 million users. This implies a valuation multiple of one-year forward revenue multiple of 6.7x (in line with Match Group’s revenue estimate for $450 million for 2018, as noted by CNN Business).
Given Bumble’s higher-paying user base compared to other apps — the company has 1.1 million Paying Users for its Bumble App and 1.3 million Badoo Paying Users — I’d expect a premium on the above valuation of at least one turn, implying a c.7.5x revenue multiple. A revenue CAGR estimate, in line with 2018–19 growth of 35.8% implies 2021 revenues of c.$900m. Therefore, a valuation of c.$7 billion seems to be a reasonable estimate for the IPO.
As a reference, Match Group is currently trading at 14.1x EV/2021 revenue, as per Public Comps, however, this is not directly relevant given Match Group’s more diverse operations and mature brands but could signal potential valuation upside for Bumble.
The company believes there is a significant opportunity to extend our platform beyond online dating into healthy relationships across all areas of life: love, friendships, careers, so there remains potential upside to the above valuation.
The bottom line
Bumble offers an attractive opportunity for users to get an early foothold into the online dating market, given the few public players in this space and the company has a clear, value-led niche which it has built a community around.
However, the valuation remains to be seen — as seen above there are few accurate comps and investor demand would probably determine the offering price for the IPO and I believe a valuation much higher than the $7 billion noted above is likely to require a strong conviction in Bumble’s ability to continue to compete in a saturated market and also expand into adjacent verticals within women’s social networking industry.
Disclosure: My views are personal. I am not a financial advisor, and this post is not meant to be investment advice. I am not an investor in Bumble.
Thank you to Jeff Bussgang for the idea for and feedback on this post.