Is Bumble the Future of Dating? (NASDAQ: BMBL)

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This week we’re discussing Bumble and the future of online dating with Natasha Larcos, co-host of the ‘Officially Unofficially’ podcast.

In this week’s episode we discuss:

Bumble, its recent IPO and financial performance
The online dating competitive landscape and how Bumble stands out from other dating apps
The relationship value chain and the possible areas of white space (areas in the market they could expand to for future growth) for Bumble
And the future of online dating and how Bumble could continue to stay ahead of the pack

So what is Bumble?

Bumble is a social media company that manages two online dating platforms; Bumble and Badoo. Bumble was founded by Whitney Wolfe Heard in late 2014 after leaving Tinder, where she was was an early Executive. She created Bumble with the purpose of making a dating app where women were at the centre of the dating experience - on Bumble, women have the power to initiate conversation with their matches, something that men on the platform are unable to do.

Users create a profile on Bumble and choose between three modes

Bumble Date - a service where users can match with a potential partner for the purposes of dating
Bumble Bizz - a service where users can match with someone for the purposes of business or career networking
Bumble BFF - a service where users can match with people anyone (including outside their preferred sexual orientation) for the purposes of making new friends and meeting people

Badoo is similar and also has three modes - date, chat and make new friends. These modes mirror the functionality of Bumble Date and Bumble Bizz.

Since Bumble started, they have grown to become a USD $582m business, with over 2.5m users across both Bumble and Badoo. They recently went public on the NASDAQ at $76 a share and a market cap of USD $7.7b (at close).

Bumble generates revenue in three ways, across both Business to Consumer (“B2C”) and Business to Business (B2B) sales:

B2C

Paid premium users - Users can pay a subscription fee and get access to extra features and more swipes (if you’re a free user, you have a limited number of swipes per day)
In-app purchases - Users can also pay for more swipes, special swipes and Bumble Coins if they don’t want to pay for a premium service

B2B

Advertising - Bumble sells ad space on their platform in the form of ‘profiles’ that appear to users

How has Bumble performed historically?

Bumble has steadily grown at 27% CAGR between FY18 - 20, outpacing its main competitor, Match Group over the same period while also improving key customer metrics including ARPPU and customer numbers.

Since 2018, Bumble has grown ~27% Compound Annual Growth Rate (CAGR), which for a technology company of Bumble’s size, is decent growth (for comparison, Match Group, the parent company of Tinder, a competitor, grew around 18% over the same period).

They’ve had a short history of profitability, in 2019 they generated a positive Net Income of ~USD $86m (17.6% margin) but has since been unprofitable in FY20 (USD -$134m, -23% margin). Generally, revenue is a good indicator of the size and scale of a business, while profitability is a good indicator of performance. They’ve grown their size and scale well but should improve profitability.

From a customer perspective, key metrics across the platform have improved YoY since 2018.

Source: S-1 Filing

Some interesting things to note in these metrics:

Bumble’s paid users generate about USD $322 a year (Bumble’s ARPPU is calculated on a monthly basis) and this has increased since 2018 by 5.6% CAGR
The number of paid users has also increased for Bumble over this period - growing by 41% CAGR, and this number outperforms their other app, Badoo (although Badoo as a larger number of paid users)
Overall, Bumble has shown that it can consistently improve revenue, both from the number of customers and the revenue it generates from customers

In addition to these revenue and customer growth numbers, Bumble has shown to be incredibly efficient at product development - they have delivered and deployed a number of new features within their platform at a lower R&D cost. Trevor Scott wrote a great analysis here on their product costs if you’re interested.

What makes Bumble a good business?

Generally, great technology companies have three key factors we want to looking for and Bumble fits the bill on these factors.

Network effects - As more users make Bumble profiles, the pool of potential dating matches increases, which then leads to more people who are looking for a partner creating a Bumble profile, further reinforcing this network effect and strengthening Bumble’s platform. The better quality and the more people you have on the platform, the more you can attract other users of the same quality or quantity
Sustainable key differentiator / competitive advantage - Bumble’s key differentiator is that it’s a platform that puts women at the centre of the customer experience. The main manifestation of this comes from the ‘women make the first move’ feature - which itself can easily be replicated but the branding and reputation, culture and women-first mindset that Bumble has built its business on cannot easily be replicated
Customer stickiness - this is an interesting one because Bumble itself is a ‘one time use’ application. Once you’ve found a partner, you’re likely to delete the app until you need to find another partner. We’re going to say yes - it has some level of stickiness given that if you’ve previously found a partner on Bumble, you’re probably likely to find your next partner on it (we have no data to back this up, but it’s a good hunch)

Okay, great! Bumble is looking like a good business. But is the dating market attractive to invest in? (see our great pun just now?)

Source: Stanford University and University of New Mexico

There’s no doubt about it - dating is a numbers game. Due to a number of macro factors - pace of technological change, the internet, the changing nature of ‘going out’, and rising cost of living, more and more couples are turning away from traditional sources of meeting a partner and instead are meeting online. The challenge with trying to find a potential partner is that traditional methods were singular when it comes to meeting someone - you might meet one or two people at work you’re interested in, or on a night out, or through a friend. The pool of people you could date was limited to your existing network, or a few degrees outside of that.

Bumble (and other dating apps) solves this problem and more - they enable users to meet with potential partners outside their networks and connect them with the hopes of forming and sparking a relationship. Additionally, Bumble also provides an avenue to let users talk and filter these matches quickly and with limited effort and resources, something that was difficult and consuming to do in the traditional method of dating and meeting people.

With the impact of COVID-19 around the word and the limitations placed on meeting people physically, online dating is going to continue its growth trajectory and remain popular amongst people looking to date. It’s not going away anytime soon given the slowness of the vaccine rollout.

Overall, the dating market is an attractive industry. It’s clearly growing and solves a problem that existed previously in the market - with Bumble capitalising on this trend and differentiating itself from other competitors through its ‘women make the first move’ feature.

Who else does Bumble compete with in the market?

Source: CB Insights

Bumble is a generalist dating platform - it’s targeted at anyone and aims to cater for all audiences. Their key competitors in dating are Tinder, Hinge, eHarmony and Grindr, but given their Bumble Bizz and Bumble BFF, we’d also expand this list of competitors to include LinkedIn (for Bumble Bizz) and Facebook Groups (Bumble BFF).

With the rising popularity of dating apps and online dating, there have been a number of new entrants into the market who differentiate their platform by targeting a specific niche or audience.

This plays into the users who are looking for a specific type of partner or relationship. We’re all looking for a ‘type’ and when people swipe on Bumble, they’ve filtered for someone who might meet that type, hold similar values, hobbies or sexual preferences. The introduction of other niche dating apps enables users to remove the extra layer of filtering they have to do on Bumble and only see potential partners who fit their preferences.

We don’t see these niche players taking Bumble’s lunch, despite this trend holding true in some technology market segments (i.e. disaggregation and introduction of specialist streaming services, introduction of niche and specialist SaaS products). The majority of the dating population are probably ‘generalists’ - they’re not looking for a very specific type of partner and as such, these people will continue to fuel Bumble’s customer growth as we know that dating is a pure numbers game.

Where does Bumble go from here to continue differentiating itself in market?

Source: Our own personal experiences with relationships

Projecting to the future, Bumble has a number of avenues for future differentiation within the dating / relationships market. Bumble needs to keep investing in its business in order to fuel growth and attract more users.

We at Fresh Capital thinking of them in two key buckets; innovating where they play, or innovating how they win. What do we mean by this?

Innovating where Bumble plays: Assuming Bumble stays within the relationship and dating market, they could expand their services to offer a holistic platform for managing and growing a relationship - a phrase we’re calling ‘Relationships as a Service’ (RaaS):

At the moment, Bumble itself is a ‘one time use’ app - you use it to find a partner and everything else that happens in the relationship happens off the app
Bumble could start to expand across the dating lifecycle and could start offering services such as online events to meet others (we believe they’ve started to test this on an ad-hoc basis), as well as in-person events, or partner with venues and restaurants to organise dates, holidays, weddings and so forth
They could even expand into further vetting - asking users to take a test and show their values, input salary data, career information, book tastes, surfacing political ideology and so forth (they do this but at a very high level)
Moving into the later stages of a relationship - online relationship counselling, therapy or even assisting with rekindling romance
Or if all the options are on the table; Dating Managed Services - users are given a set of curated matches that they have to go on a date with, or have to enter in a relationship with someone Bumble has chosen, rather than swiping or choosing (inspired by this episode of Black Mirror)

Innovating how Bumble wins: Assuming Bumble stays within their current vertical of ‘meeting a Partner’, they could start to utilise a number of different technology to further differentiate the quality of matches it provides to its users or the user experience once you’ve matched:

AR / VR - Using augmented or virtual reality to simulate the experience of meeting a match or partner physically
AI / Machine Learning - Improving their matching algorithm using predictive analytics based on customer data and inputs to show better and higher quality matches
DNA / genetics based matches - this might be a bit farfetched but matching users based on genetics (this one is probably outrageous and controversial)

So what’s your verdict on Bumble?

Overall, we think Bumble is a great business, with lots of future white-space that could enter, good growth in key metrics and a history of profitability.

During our podcast episode, we dive deeper into the competitive landscape and where Bumble stands out, so if you’re interested in hearing more, check out the latest episode of Fresh Capital here.

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