Bumble (NASDAQ:BMBL) stock only recently had its IPO on Feb. 11. The stock’s price has seen a tumultuous series of ups and downs in the month since the dating app company became publicly traded.
As I write this now, Bumble stock sits 12% lower than its IPO price. So, investors who bought in at IPO prices certainly must be experiencing some remorse at present.
The company is the parent company of two dating apps, Bumble and Badoo. One of the important differentiating factors for Bumble is that on the app women make the first move. Bumble is certainly carving a niche for itself in the world of dating apps. I have little to say about its agenda, rather I’d like to dive into numbers around the company in an effort to ascertain its worthiness as a stock.
A Broad Look at IPOs
Let’s imagine that you’re an investor who likes to play the long game. That is, you’re a buy-and-hold investor. The kind of investor who seeks strong companies, buys their stock, and then holds on for a long period of time seeking price appreciation.
For that kind of investor, what do broad statistics say in relation to IPO purchases, and how can we apply that to Bumble?
To try and answer that question, let’s look at 5-Year Buy-and-Hold returns on IPOs from a study that includes the 40 year period from 1975 to 2015. Investors who think simply buying into IPOs and holding on is a strong strategy should be cautioned otherwise. That’s because during that period the strategy I just outlined led to losses or 0% gains in 56% of cases.
A Gamble?
If you like to gamble at the casino this is somewhat akin to the house always winning. More to the point, this strategy doesn’t equate to a simple coin flip. Most of the time investors will lose.
More sobering than that, is another statistic about buying and holding IPOs. 38.5% of IPOs in the entire group recorded losses of greater than 50% following that strategy. Investors should certainly be taken aback by that figure. That means if I go invest $10,000 in the next random IPO, I have a 38.5% chance of losing at least $5,000.
But I digress. What does that say about Bumble?
Obviously I cannot predict the future. However, the mathematical odds are against Bumble over the next 5 years. More importantly, Bumble stock is down 12% from its IPO date. Its start isn’t a fortuitous one in my mind.
Numbers Underpinning Bumble
According to the S-1 form accompanying the IPO, Bumble Holdings didn’t have a strong first 9 months of 2020. Between Jan. 29 and Spet. 30, Bumble Holdings recorded $376.58 million in revenues. Unfortunately, it had total operating costs and expenses of $430.44 million during that same period. This led to a net loss of $84.02 million after tax considerations.
Bumble monetizes its Bumble and Badoo apps via a freemium model. The service is free to a point, then users pay for subscriptions and purchases. This is a high-level overview of how the company makes money which then ostensibly is directed back to potential investors (i.e., you and I). The fact is that it isn’t to make that happen given an $84 million dollar loss. Bumble will release earnings a few days after this is written. However, on an annualized basis, we can expect a loss of $112.026 million through the entirety of 2020.
A general argument in favor of Bumble is that dating will see an uptick due to vaccines. That’s logical enough. However, does the calculus bear out? To me it doesn’t because the fact is Bumble was still monetizing users during 2020. It just couldn’t turn a profit off of them.
Takeaway
The numbers aren’t compelling. I wouldn’t get in on Bumble now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
