When Bumble (NASDAQ:BMBL) stock IPOs on Feb. 11, investors should remember the unwritten rule on Wall Street: make sure your IPOs have a first-day pop. And BMBL stock underwriters look set to deliver. By all indications, the opening price range for BMBL could quickly move from the high $30s to the $50s.
Ordinary investors can still win. Even a $10 billion valuation could yield strong medium-term results as more people turn to app-based dating. Longer-term, however, Bumble will need all the skills of CEO Whitney Wolfe Herd and her team to succeed; the company will need to keep growing internationally and make smart acquisitions along the way.
It won’t be easy. But with some luck, Bumble might one day rival IAC (NASDAQ:IAC) at its own dating game.
BMBL Stock IPO: A By-the-Book IPO
Bumble is scheduled to IPO under the ticker “BMBL” on Feb. 11 at $37-39 per share. That would value the company between $7 and $8 billion, a 31% premium to its initial IPO price.
Bumble’s IPO is a textbook case of a well-planned offering on several fronts. First, the company’s bookrunners have been extremely smart in pricing. Bumble’s underlying value looks closer to $10 billion compared to competitor IAC, the owner of dating behemoth Match.com and Tinder. A moderate first-day pop will give Bumble the air of success without leaving too much money on the table.
Second, the BMBL IPO couldn’t be timed better. IAC has seen its shares rocket up 225% in the past year as stuck-at-home people turned to apps for social connections. And Bumble, with its higher-quality earnings than most recent special-purpose acquisition companies, will likely see equally strong investor demand.
And, finally, bookrunners have wisely buried the Badoo name, opting instead for “Bumble.” Although over half of BMBL’s users come from the Badoo app, investors will want to forget the controversy that Badoo’s founder, Andrey Andreev, left in his wake. (A 2019 Forbes exposé revealed a toxic culture of sex, drugs and misogyny at Badoo’s headquarters. Mr. Andreev resigned soon after).
But after a successful IPO, what’s next?
Room for Two?
This isn’t Bumble CEO Whitney Wolfe Herd’s first rodeo. As an early employee at Tinder, Ms. Herd had a well-documented falling out with Justin Mateen, one of Tinder’s co-founders. The bad blood has lasted years, with Tinder’s parent, IAC and Bumble trading lawsuits every several years. This fight, however, underlies a battle between two growing behemoths.
In the past, online dating was a fragmented space — a 2016 survey counted no fewer than 1,500 dating sites in the U.S. When dating happens on a city-wide basis, web-based companies only need 1,000 – 2,000 members to become self-sustaining.
App-based dating, however, has turned that notion on its head. Because apps rank users by distance — and “swipes” happen far faster — app-based dating companies need much higher density than their web-based predecessors. That means winners will keep on winning. Much like Lyft (NASDAQ:LYFT) and DoorDash (NYSE:DASH), dating apps have far stronger network effects than traditional businesses. The more people join, the stronger the network becomes. That drives even more people to join, and so on. Smaller apps, meanwhile, will quickly shrink and disappear.
The numbers speak for themselves. With overall users spiking 22% in 2020, Bumble and Badoo have handily outpaced IAC’s legacy Match.com dating businesses.
What’s Bumble Worth?
The U.S. app dating market is already extremely concentrated. IAC’s mobile apps — Tinder, Plenty of Fish, Match.com, OK Cupid and Hinge — make up almost 80% of the market. Bumble makes up the other 20%. As more people migrate from web-based to app-based dating, the pie looks set to grow.
So, how much of the pie can Bumble claim for itself? The past gives some hope for optimism. Ms. Herd expertly navigated the Badoo/Bumble merger, carving out the U.S. market for her own app while keeping Mr. Andreev’s free-wheeling Badoo away. Her team has since created the only strong rival to IAC’s U.S. franchises. If Ms. Herd can revamp international growth, BMBL stock could be worth somewhere between $60-70 or more next year — a $12-13 billion range for the company. And that number should keep growing as Bumble keeps making inroads into new growth markets.
But there’s also cause for concern. After taking over Mr. Andreev’s position as group CEO, Ms. Herd has seen Badoo’s growth start to sag. In 2020, Badoo’s paying users grew at less than half the speed of U.S. based Bumble — a troubling sign for a dating app that claims top spot in developing markets like Africa, Asia and South America. If Badoo continues ceding market share to IAC, it could trigger a landslide of users switching to more popular dating apps. That would stall out Bumble’s momentum, leaving its shares languishing in the $30-40 range.
Investors will have no shortage of excitement. As Bumble continues to grow its user base, you can expect the company to try branching out into other app-based services — perhaps internally grown, but more likely through acquisition. And no matter what, one thing is clear: With a user base that’s increasingly turning to their phones to enhance social life, Bumble has found itself on the right side of history.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.