Dating is an inherent part of human nature, and as the world has turned more towards digital interaction, so too has the process of dating. Historically, online dating used to be seen as a very niche area, but over the years, as social media has proliferated, so too has online dating. According to a study by Pew Research, three in 10 U.S. adults have used an online dating website or app. This includes 53% of those under 30. Therefore, in this article, we will take a look at two dating app stocks that give investors exposure to the growing online dating industry; let’s dive in.
1. Bumble
Bumble (BMBL, Financial) is the third-largest dating app in the world by market share, according to data from The Business of Apps. The company has an interesting origin story. It was founded by Whitney Herd in 2014, a former Tinder employee who was at the heart of a sexual harassment scandal. Herd accused a Tinder executive (who was also her former boyfriend) of harassment and sued the company after being fired. Following this experience, she vowed to create a “safe place” for women to date online and thus created a mission-driven company named Bumble.
Unlike Tinder, Bumble’s key value proposition was that women made the first move. The idea was to discourage men from sending unsolicited explicit sexual messages, as women got to start the conversation.
Herd then utilized a series of "growth hacks" to help make the app go viral. She started by targeting college societies of which she had connections to, which enabled referrals to spread like wildfire.
Throughout 2020, the digital transformation and the Covid lockdowns caused an acceleration in users by 20%. The genius of the founder was shown again as Herd capitalized on this growth and the bull market to take Bumble public. The company had its IPO on the Nasdaq in February 2021 and raised a staggering $2.15 billion at a valuation of $8.3 billion.
The stock price has since corrected down substantially (by over 77%) from this peak, but this has been mainly caused by a secular decline in the growth stock industry.
Financial review
Bumble generated solid financial results for the first quarter of 2023. Its revenue was $242.95 million, which beat analyst forecasts by $1.95 million and increased by 15.67% year over year. This growth rate was similar to the 16% growth rate achieved in the fourth quarter of 2022 and thus could be an indication that its growth has stabilized. The top-line growth was driven by an increase in paying users by 15% to 3.5 million with an average revenue per paying user (ARPPU) of $22.83.
Not many people know this, but Bumble doesn’t just own the Bumble app, it also owns the popular dating app Badoo and the French app Fruitz.
The Bumble app generates ~80% of revenue and reached $194 million in revenue in the recent quarter. This was driven by 98,000 sequential net users being added as Bumble focused on international expansion with market share gains reported across Western Europe, Latin America and India. According to the earnings call, Bumble was the most downloaded dating app in both the U.K. and Canada. The app was rated second place by downloads in the U.S. and France.
Bumble also tracks its “net brand favorability” with women and stated it is the highest rated among the Gen Z segment, according to data from Morning Consult. Management believes this will help drive word-of-mouth growth with its users and ultimately higher engagement.
Badoo was a market leader in 2015 but has gradually slipped down the chain. Although, management states it remains a “top three” app across many countries in Europe and Latin America. Its app revenue was $49 million in the quarter, down 13% year over year. However, the company has plans to return to growth after noting growth in re-engaged users. The app is testing a new experience that speeds up the time to make a quality connection.
Moving on to the Fruitz app, the company reported solid growth with its core French Speaking user demographic as well as with Gen Z.
In terms of profitability, the company reported a miss for its earnings per share with a loss of $0.01. This was driven mainly by a 15% increase in non-GAAP operating expenses to $184 million. A positive is Bumble reported an improvement in adjusted Ebitda with $59 million reported at a 24.4% margin, up from 23.7% in the prior year.
The company also has a solid balance sheet with $389 million in cash and cash equivalents compared to total debt of $640.4 million.
Moving forward, for the full year of 2023, management is expecting between a 16% and 19% growth rate for revenue, which is positive given the company previously grew its revenue by 16%.
Valuation
The company trades at a price-sales ratio of 2.57, which is cheaper than its historic levels. Bumble also trades at a price-book ratio of 1.16, which is cheaper than the sector average.
2. Match Group
Match Group (MTCH, Financial) is a dating product holding company that has a portfolio of over 45 different brands. This includes the market-leading dating app Tinder, as well as popular sites such as Match.com, Hinge, PlentyOfFish and OkCupid.
Each brand targets a specific demographic. For example, PlentyOfFish is popular in the U.K. among those over the age of 40, while Tinder is generally most popular with millennials. Tinder can also be thought of as a more playful app for short-term relationships and flings, whereas Match.com specializes in long-term relationships.
Similar to Bumble, Match Group monetizes its products through premium features such as super swipes and subscription packages.
The company went public in 2015 and raised $400 million at a $3.5 billion valuation. It has a complicated trading history that involves a tie-up with IAC (IAC, Financial) at one point before the two companies separated again, which actually left Match with IAC's trading history and allowed IAC a fresh start. Today, the company is valued at ~$8.89 billion, just under three times the IPO value.
Mixed financials
Match reported mixed financial results for the first quarter of 2023. Its revenue was $787 million, which missed analyst forecasts by ~$6.94 million and declined by 1.44% year over year. This was partially driven by a cyclical correction in the industry, as the company reported tremendous revenue growth of ~25% in 2020.
Match also has a secret weapon for future growth, and that is the Hinge app which was acquired in 2018, when the app was generating just under $1 million in revenue. Since that point, the app has grown exponentially and is on track for $400 million in revenue for 2023, with 27% growth reported in the first quarter of 2023. The app also reported 1 million paying customers, up a solid 15% year over year.
Hinge was basically born out of the issues Tinder has created. Tinder optimizes for volume of connections, whereas Hinge focuses on a lower number of higher quality connections. The platform does this by offering a limited number of swipes and upselling users for “roses” which are similar to super likes. The platform has also recently launched HingeX, a subscription package, which is promising.
Moving on to earnings, the company reported earnings per share of $0.42 which beat analyst forecasts by $0.02.
The business also has a strong balance sheet with $578.3 million in cash and short-term investments compared to total debt of $3.9 billion.
Valuation
Match trades at a price-earnings ratio of 30, which is 47% cheaper than its five-year average. The company also trades at a price-sales ratio of 2.82, which is 54% cheaper than its five-year average.
Final thoughts
I personally believe both of these dating app companies have great growth potential, but I prefer Match Group over Bumble, mainly due to the huge growth reported in Hinge. Match is also more diversified across different apps and demographics and has a longer history of being profitable.
