Bumble BMBL IPO preview Fastgrowing dating app on tap

Background

For all of our happily married readers, I have two things to say:

1)     Congratulations on finding the love of your life; I wish you years of contentment!

2)     It’s probably still worth familiarizing yourself with the dating app landscape for investment purposes, even if you don’t ever plan on using them.

Enter Bumble (BMBL). The dating application was founded by Whitney Wolfe Herd after she departed Tinder, another wildly-popular dating application, in 2014 amidst allegations of sexual harassment. While we normally wouldn’t mention past lawsuits, Herd’s experience at Tinder was central to Bumble’s founding ethos to put women in charge. Unlike other dating apps, only women are allowed to initiate conversations, making Bumble generally friendlier, more inclusive, and less toxic than other dating applications. While it’s already a major player among dating applications with 100M global users, the company has long-term ambitions to become a "preeminent global women's brand."

Source: Bumble

Bumble Financials

According to its S-1 filing, Bumble earned $377M in revenue in the first three quarters of 2020, bolstered by stay-at-home mandates across the globe. Over that same period, the company lost $84M, though it has generated profits in the past, including $86M in income on $489M in revenue in 2019. The company generates most of its revenues through premium subscriptions and in-app purchases, with advertising revenue accounting for just 3% of total sales.

In terms of the IPO itself, Bumble recently boosted the size and price range of its offering due to strong demand. The company now plans on selling 45M shares at an IPO price between $37-39, meaning the company could raise as much as $1.8B at a $7.2B valuation.

Bumble IPO Risks and opportunities

There’s certainly a risk with the lofty valuation on a generally unprofitable company, but investors have been gobbling up the shares of fast-growing companies aggressively of late regardless of profitability. In comparison, competitors like Match Group (MTCH) and InteractiveCorp (IAC) sport valuations of $45B and 23B respectively, so there’s certainly room for upside if the company can continue to attract new users.

The other major risk associated with the company is that it is entirely dependent on the its dating apps for revenues at the moment. While management is seeking to diversify into other community-building strategies, these ventures have yet to generate meaningful revenue, so if the zeitgeist of the volatile dating app industry moves away from Bumble for any reason, the stock may struggle.

On the positive side of the ledger, Wolfe Herd (31) will become the youngest woman ever to bring a company public; combined with the firm’s general philosophy of empowering women, the stock should become a staple in fast-growing ESG (environmental, social, and governance) funds.

While we eagerly await to see where the stock opens on Thursday, readers are reminded that IPOs tend to be highly volatile when they first hit the market as the market tries to home in on an initial valuation. For that reason, it’s critical for readers to watch prices closely, practice good risk management, and size positions appropriately.

We’ll have a more thorough overview of the company and update on its first day trading tomorrow – stay tuned!

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