Bumble Goes Public in Time for Valentine’s Day

alexander-sinn-KgLtFCgfC28-unsplash.jpg

Bumble will not celebrate Valentine’s Day alone this year. Instead, it will court a new class of investors through its IPO on the Nasdaq stock exchange under the ticker “BMBL.” Priced at $43 per share for 50 million shares, the $2.2 billion IPO bumps Bumble’s valuation to $8 billion. From a business perspective, Bumble’s IPO makes history as the company with the youngest female CEO to ever go public. From a social perspective, the IPO attests to the public’s support of a dating world that not only increasingly comprises online dating, but also gives women greater control in composing their romantic narratives. 

Whitney Wolfe Herd co-founded Bumble at the age of 25 with Badoo dating app founder Andrey Andreev in 2014. Previously the co-founder and VP of Marketing at Tinder, Herd left the company after filing a lawsuit against the then-Tinder CMO Justin Marteen for sexual harassment. Determined to challenge the old-fashioned gender rules of dating, Herd sought to create a women-centric platform that “creates empowering connections in love, life, and work, […] to end misogyny and re-write archaic gender roles.” So Herd designed the rules of the game such that women must message first within 24 hours of a match, or the match disappears. Although Bumble services initially catered to romantic relationships, they quickly grew beyond dating, to include Bumble BFF for friendships in 2016 and Bumble Bizz for networking in 2017. The app took off swiftly and from 2016 to 2019, revenue increased 24x to $240 million. In 2019, Wolfe assumed full control of Bumble and Badoo, and Blackstone Group, Bumble's biggest investor, bought Andreev's stake. Today, Bumble and Badoo house 42 million monthly active users from 150+ countries and continue to grow despite a challenging COVID-19 environment. 

The recent heat in the IPO market, seen through the spectacular stock surge on the first trading day for both Airbnb and Doordash, suggests that Bumble could cash in on the burgeoning appetite of retail investors. As the second highest-grossing dating app in the world after Tinder, Bumble has the potential to grow its equity base. Compared to Match Group, Tinder’s parent company, which trades at 19.0x price-to-sales, Bumble trades slightly lower at 17x based on a $43 share price. For its IPO, Bumble has chosen Goldman Sachs and Morgan Stanley to lead the underwriting and hopes to use the proceeds to pay down debt and repurchase equity from private shareholders.

Bumble has already reached profitability, so it sets its eyes on generating sustainable cash flows. The question remains how to turbocharge Bumble’s monetization strategy. Currently, the company monetizes through three products: Bumble Boost, Bumble Premium, and access to additional in-app features. While Bumble has doubled its number of paid users to 1.1 million in the last two years, the average revenue per user has risen only modestly. Non-paid users still account for about 90% of total users, eating away at the marketing budget rather than contributing to the bottom line. The low ratio of paid versus non-paid users for Bumble and Badoo combined (5.7%) signifies that the company simultaneously has difficulty converting new customers to premium ones and an opportunity to monetize the remaining pool of non-paid users. Bumble can explore several avenues for growth, such as increasing revenue per paid user, conversion rate, or the total number of users.

Converting non-paid users to paid users remains the option with the greatest upside but also one most difficult to execute. To improve conversion, Bumble needs to create a greater distinction between free and paid versions. For example, Bumble may consider charging a baseline fee for each user. However, the fee could drastically lower the appeal of Bumble relative to other free apps. Raising monthly subscription prices also appears an unlikely choice, since the average dating user views anything above $25 as expensive and Bumble subscriptions cost $24.99 per month. Instead, reaching a broader market may achieve the goal. Bumble captures 21% of the dating app market in the US (compared to Tinder’s 22%) but only 10% globally (compared to Tinder’s 29%). Replicating its success with US customers in international markets could provide a major boost for the company. 

An increasingly saturated online dating market could hinder Bumble’s development, but not as much as one may think. Bumble faces tough competition from Match Group, the owner of Tinder, Hinge, Match and OkCupid. However, unless one platform manages to attract every single person in the dating pool, dating apps function more as complements than substitutes. That is, users want to maximize their chances of finding the best partner by trying out various platforms. Furthermore, Bumble’s female-oriented and relationship-focused strategies make unique selling points. For 40% of US college students, “Tinder is for hookups, and Bumble is for dating.” The prevailing sentiment suggests non-threatening levels of competition between the two. 

Bumble has achieved phenomenal growth in just six years. The company’s public debut represents a new beginning – not only because it has raised new capital, but also because it has welcomed a new class of investors capable of driving organizational changes. With the additional $2 billion, Bumble has many options to explore, none of them easy, but all having the potential to build the firm into a sustainable, large scale, and female-focused social network empire. The enthusiasm from stock market participants will likely push Bumble’s price upon opening, and its healthy performance during the pandemic could further support the upward trajectory. Competitive forces could impede Bumble’s growth, but the company’s unique positioning makes it largely defensible against competitors. The relationship between Bumble and the stock market seems promising, and whether the same can be said years from now will rest on Bumble’s ability to innovate, monetize, and expand. For now, Bumble should celebrate because making a good first impression is the first step to a happy and long-lasting relationship.