Bumble (NASDAQ:BMBL), the dating app, has had a very successful initial public offering (IPO). The company issued 57.5 million new shares at an average price of $41.065 after expenses, according to its recent 8-K filing. This amounts to a whopping $2.36 billion. However, the company isn’t getting very much of this money. Moreover, BMBL stock is now 39% overvalued, based on my analysis.
First of all, let’s go over the IPO capital raise. It turns out that Blackstone Group (NYSE:BX) is getting most of that money. Bumble is going to spend $1.9916 billion of the $2.36 billion raised buying back 48.5 million shares held by Blackstone.
Therefore, even though Bumble issued 57.5 new shares in the IPO, it bought back 48.5 old shares, effectively increasing its total share count by just 9 million shares.
As a result, I estimate there are now just 110.49 million shares outstanding, using information from the S-1 prospectus on page F-33. At today’s price (Feb. 24) of around $70, the effective pro forma market cap is $8.29 billion.
Of the remaining cash raised, Bumble is going to spend it on debt repayments of $200 million and the rest on expenses. In effect, the company will end up with less than $176 million in cash.
In addition, Bumble will still have $181 million in net debt. That gives it an Enterprise Value of $8.1 billion. This will be important in the valuation of BMBL stock.
To value BMBL stock I figured the easiest way to do this is to compare it with Match Group (NASDAQ:MTCH), another popular dating app. MTCH stock has a $43.38 billion market cap and is much bigger. It is also much more profitable.
I suspect one reason why BMBL stock has done so well after its IPO (up over $28 from its $43 IPO price last week), is the high EV-to-EBITDA (earnings before interest, taxes, depreciation and amortization) multiple at Match Group.
For example, Match made $2.391 billion and made EBITDA of $794.5 million, according to Seeking Alpha. As MTCH stock has an EV of $46.175 billion, its EV-to-EBITDA multiple is 58 times.
By comparison, Bumble made an adjusted EBITDA of $108.3 million in the first 9 months of 2020. That implies a full year EBITDA of $144.4 million. This means its EV-to-EBITDA multiple is 56 times (i.e., $8.1 billion EV divided by $144.4 million).
In other words, BMBL has a similar EV-to-EBITDA multiple (56x) compared to Match Group (58x) at today’s elevated post-IPO price.
But there is a problem. Bumble is not worth this high a multiple.
Adjusting the Valuation
Match Group makes an astounding EBITDA margin of 33.2%. This is because its $795 million in EBITDA represents 33% of its $2.391 billion in revenue.
But, according to page 4 of the S-1 prospectus for Bumble, the latest adjusted EBITDA margin in their 8 months to Sept. 2020 results was only 26.3%. This is 26% below the stellar 33% Match EBITDA margins.
Therefore, we have to lower the multiple by 26%. The fair value multiple for Bumble should be no more than 46 times EV-to-EBITDA. That is, at least until the company can pull up its margins to Match Group’s level it should have a slightly lower multiple.
This results in an EV of $4.982 billion, a market cap of $4.801 billion, and since there are 110.49 million shares, a fair value price of just $43.45 per share. That represents a loss of 39% from today’s price.
What to Do With BMBL Stock
This is just one metric of the comparative value of Bumble vs. Match. There are other things an analyst can look at, such as the comparable ARPU (average revenue per unit) of each company, the valuation per subscriber, and the relative growth rates of each company.
It may be that after adjusting for differences in these metrics as well that Bumble is worth its present lofty price. But I doubt it. I am going to stick with my gut here that BMBL stock is at least a third or more overvalued.
The cautious investor will likely realize that most of the potential gains in BMLB stock have already been made, in comparison with Match Group. Until the company comes out with more financial information and its 2020 performance there is not enough info to properly gauge its real value.
But my initial analysis shows that it is 39% overvalued and not worth more than $43.45 per share.
On the date of publication, Mark R. Hake does not hold a long or short position in any stock or security mentioned in this article.