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Bumble: An Opportunity for Investors

3 Mins read

Bumble (ticker: BMBL), the company that operates the popular dating apps Bumble and Badoo, has been facing a downturn in its stock value. However, this presents an opportunity for investors to consider.

Since November of last year, Bumble’s stock has dropped by almost 40%. The decline started with the announcement that both Blackstone and Whitney Wolfe Herd, the company’s founder and CEO, would be selling shares in a secondary offering. This caused a sell-off in the market, coupled with concerns about reduced user spending on dating apps. Furthermore, the departure of the company’s president, Tariq Shaukat, in May added to the negative sentiment.

Unprofitable companies like Bumble have fallen out of favor with investors, especially with rising interest rates. The accumulation of unfavorable news has contributed to a significant decrease in Bumble’s share price. Starting at a high above $70 on its first day of trading in 2021, the stock has now dropped to a recent price of $16.52. The current market capitalization stands at $2.3 billion.

It is worth noting that Blackstone remains a significant stakeholder in Bumble, holding 24% of the stock. The recent secondary offering, during which Blackstone and Herd sold a combined 13.75 million shares, had a particularly chilling effect on investor confidence. As a result, it is expected that the stock price will remain restrained for some time. Thomas Ricketts, the Chief Investment Officer at Evolutionary Tree Capital Management and a fellow shareholder in Bumble, expresses optimism about the business but acknowledges the lingering impact of Blackstone’s remaining stake. Nonetheless, he suggests that his fund may consider purchasing more Bumble stock once Blackstone’s exit is nearing completion.

Overall, despite the fluctuations in its stock value, Bumble’s underlying business remains robust and promising. Investors should keep a close eye on this opportunity.

Bumble’s Impressive Financial Performance

Bumble, the popular dating app, surpassed market expectations in its first-quarter sales. With a revenue of $243 million, exceeding the consensus estimate of $241 million, the company is off to a strong start. Additionally, Bumble experienced significant growth in its total paying users, reaching approximately 3.5 million during the quarter, surpassing analyst projections.

The impressive financial performance continued with earnings before interest, taxes, depreciation, and amortization (Ebitda) of $59.3 million, beating the consensus forecast of $54.8 million. However, due to a higher-than-expected tax rate, the company reported a loss of one cent per share.

Despite this minor setback, Bumble’s management remains confident in their full-year guidance for revenue growth. They anticipate a remarkable increase of 16% to 19%, implying revenue of $1.06 billion at the midpoint.

Bumble’s Success in Gaining User Share

One notable aspect of Bumble’s success is its ability to gain user share from its main competitor, Match Group’s Tinder app. Analysts at Evercore recognize Bumble’s consistent outgrowth compared to its rival.

The increasing focus on payer growth is particularly noteworthy to RBC analyst Brad Erickson. After analyzing Bumble’s first-quarter earnings report, Erickson expressed his positivity towards the company and assigned a price target of $27 on the stock. This target suggests a potential gain of 66% from recent levels.

A Long-Term Growth Prospect

Wall Street analysts were quick to highlight Bumble as a long-term growth story. They project that the company’s sales will compound annually at a rate of approximately 19% over the next five years, reaching a total revenue of just over $2.5 billion. This growth will primarily be driven by a 15% annual increase in paying users.

As Bumble gradually reduces its reliance on marketing, its profit margins are expected to expand. Consequently, the company’s Ebitda is projected to increase annually by 23%, reaching an impressive $761 million by 2028.

An Attractive Valuation

Bumble’s valuation presents an appealing opportunity for investors. With an enterprise value of $3.7 billion, the company is currently priced at just under 13 times the analyst consensus expectation for forward 12-month Ebitda. This is a notable decrease from previous months when the multiple stood at a midteens figure.

To put this into perspective, Internet company Etsy (ETSY) currently trades at just under 17 times Ebitda. Additionally, Etsy expects a 25% annual growth in Ebitda over the next five years.

Commenting on the company’s potential, Evercore analyst Shweta Khajuria wrote that Bumble shares offer an attractive risk/reward opportunity at their current levels. Khajuria also assigned a $27 price target on the shares, emphasizing their optimism in Bumble’s future prospects.

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