Quickly popping after its Feb. 11 initial public offering (IPO), Bumble (NASDAQ:BMBL) is now pulling back. Shares in the dating-app operator nearly doubled from their offering price of $43, briefly hitting prices near $85 per share. However, in the past week or so, Bumble stock has corrected. Now, it’s moving back toward higher levels, currently changing hands at around $72.
Recently, Bumble had a “buy the dip” moment, but in my opinion it’s still too early to tell with this name. Yes, the company offers ample exposure to the long-term online dating trend. Not only that, even as its main competitor holds a dominant share of the market, its ownership of another global dating app, Badoo, gives BMBL a shot at making further inroads.
Yet, while there’s clearly opportunity here, things have gotten overheated right out of the gate. As it stands now, its market capitalization is $8.39 billion. That’s pretty rich for a company that generated around $489 million in 2019 sales.
Now, that’s not to say downside here is massive. After all, the company is now sitting on over $2 billion in IPO proceeds. But a pullback is likely, as investors realize shares are moving up too far, too fast. So, what’s the move in the meantime? Take a “wait and see” approach. If shares move back toward their $43 offering price, this may be a more favorable opportunity.
Bumble Stock and Its Moderate Sales Growth
In the 1990s, when online dating first came on the scene, it was a niche way to meet a romantic partner. But today? Per a survey conducted by Stanford University in 2017, a plurality (39%) of couples now meet online. Other traditional methods of meeting — including through school, family or work — have come down significantly. The only other category outside of online dating that went up? Meeting a romantic partner at a bar or restaurant.
As I said, this study was conducted in 2017. Flash forward to now — when the pandemic has made meeting people at a bar next to impossible — and you can see why investors are hot for Bumble stock. Plus, even without Covid-19, the long-term trends are clearly in its favor. It’s just that, like other internet-related businesses, the pandemic looks to be an accelerant for growth.
Or is it? Like I mentioned above, Bumble’s pre-pandemic sales were $489 million, which was up 36% from the prior year. In its IPO prospectus, the company did not provide full-year numbers for 2020. However, it did include results for the nine months ending Sept. 30, 2020.
Including Jan. 1 through Jan. 28, 2020 results for its predecessor, revenue for the nine-month period came in at $416.6 million (Page 90). Given the fact that we don’t yet have full-year results, it’s tough to make an apples-to-apples comparison.
However, in the prospectus, the company gives us a comparison of sales for Jan. 1 to Sept. 30 of 2019 against Jan. 1 to Sept. 30 of 2020 (Page 102). For the prior year’s nine-month period ending Sep 30, total sales were $362.6 million. This implies around 15% revenue growth year-over-year (YOY). Not bad, but a little underwhelming, especially considering the premium multiple that the stock currently commands.
Growth Challenges May Affect Long-Term Results
News headlines have told us that online dating has skyrocketed during Covid-19, as millions of singles have been stuck at home. But, unlike other online businesses that have “crushed it” during the outbreak, the stay-at-home economy hasn’t translated into massive sales growth for this company.
Yet, Bumble stock was priced like a stay-at-home play when it went public. Now, the company doesn’t need to have pandemic tailwinds for it to be a great opportunity. The online dating trend was fully in motion before Covid-19 and it’s not going away once the pandemic is finally over.
Even so, there may be limits to this company’s long-term growth. For example, its primary competitor owns pretty much every other major online dating platform in the United States. This limits Bumble’s ability to consolidate additional online dating brands in order to gain more market share.
That said, there is one way the company could gain an edge over the competition. Just like how Bumble itself only came about in 2014, new dating apps will likely enter the market in the coming years. If these new apps catch on, the platforms — not owned by current industry incumbents — could make great bolt-on acquisitions for BMBL.
Bottom Line: Wait for Lower Prices
With some $2.2 billion in IPO proceeds, this dating-app operator has plenty of capital to expand its share of the online-dating market. That’s true even as its main competitor remains dominant. However, does that potential justify Bumble stock’s frothy valuation? Not exactly.
Right now, shares in BMBL are trading over $70. Yet, as investors realize it’s not the slam-dunk growth story it appeared to be at first glance, shares could pull back again. I’m interested in this situation, but I’m waiting for a better entry price with Bumble. So should you.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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