Bumble (NASDAQ:BMBL) recently had its IPO and right in the nick of time as the market has been generally uneasy the last few weeks. While the rest of the tech industry had a huge selloff, Bumble was able to price its stock above its target range raising $2.2 billion in the process. Those who were lucky enough to nab Bumble stock saw their holdings appreciate by 63.5%.
Since then, the stock seems to be consolidating in a sideways movement between the $65 to $75 price level. Typically after a new IPO, it is prudent to wait for the price action to settle a bit before jumping in.
I think the same can be said for Bumble stock. This doubly true in the context of the broader weakness in tech stocks.
However, the company itself is in such a strong market position that BMBL’s stock could be an attractive proposition for long-term-oriented investors. The stock may be volatile, but the underlying business is as solid as they come.
Bumble Is a Dominant Player in the Industry
A key winning strategy for the long term is to buy companies that have a durable competitive advantage. Companies with a strong competitive advantage are able to withstand any challenges from new entrants. This helps ensure a dominant market position for a long time. In the social media era, one of the most powerful competitive advantages a company can have is the “network effect.”
According to Investopedia, “the network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service.” This effect is particularly strong for social media companies. For example, think of how you are likely using Facebook (NASDAQ:FB) or Instagram because all of your friends are on that platform.
Network effects make it very hard for a new participant to enter the space as there are already dominant players occupying specific niches. Bumble is a company that benefits from these “network effects.”
In fact, the company is one of two dominant players in the entire online dating industry. It’s other top competitor being Match Group (NASDAQ:MTCH). The company owns the second most popular dating app (Bumble) in the U.S. namesake. It also owns the most popular online dating website globally Badoo.com.
In the online dating space, Bumble is one of the most entrenched companies. I see it maintaining its leadership position for years to come.
Bumble’s App Has a Leg-Up Over Its Competitors
The “Bumble” app is particularly geared towards women and has a strong emphasis on respect and equality. It accomplishes this by having women initiate contact with men. This, ideally, reduces unwanted and overly aggressive attention. Men vastly outnumber women in online dating apps leading to a lot of dissatisfaction for both sexes. Bumble has an advantage over its rivals in this respect as it has a more balanced user mix.
By focusing on crafting an image of a safe and inclusive community, Bumble has been able to attract higher-paying clients. According to research firm Price Intelligently, the willingness to pay of a median Bumble user is 37% more than Tinder users at $16.09 compared to the latter’s $11.67.
This indicates to me that Bumble is creating a more “premium” experience. In the long run, it could start to obtain more market share from this desirable demographic. Being seen as the more premium app is a tremendous advantage for Bumble moving forward.
Online dating has become a common and an increasingly accepted way to meet your significant other. Roughly 39% of all heterosexual couples in the U.S. met online. The global online dating market as a whole is expected to grow to $3.6 billion by 2025 with a CAGR of 8.26%. Bumble has a chance to grab a disproportionately larger share of this growth.
In fact, despite the coronavirus pandemic, in 2020, the number of total paying users increased 22.2% to 2.5 million.
Investor Takeaway: Buy a Small Position in Bumble Stock
It’s clear that Bumble’s dating app is here to stay. The company’s marketing position plays extremely well into the current social trends. This will ensure healthy user growth in the long term. Furthermore, by developing this safer space, Bumble is able to nudge higher overall willingness to pay. If the company can continue to better monetize its user base, its valuation will only grow from here.
Bumble stock may seem a bit expensive as the company is trading at roughly 15.5x sales. However, if the number of paying users continues to increase, the stock should reward investors in the long term.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.