A stock analyst breaks down how Bumble can justify its IPO price and compete with dating-app behemoth Match Group
- Bumble has a path to justify its IPO price, says New Constructs CEO David Trainer,.
- The dating app will need to sweep up market share in order to compete with Match Group, he said.
- Bumble debuted on the Nasdaq on Thursday, popping 85% when shares began trading.
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Bumble has a path to justify its IPO price if the dating app increases revenue and continues to take up market share, New Constructs CEO David Trainer said in a Wednesday note.
The dating app that encourages women to make the first move began trading on the Nasdaq Thursday, after offering 50 million shares of its stock for $43 each, giving it a valuation of $8.2 billion.
One of Bumble's hurdles will be to continue taking dating-app market share as it has since 2017, said Trainer. Bumble's largest competitor is Match Group, the parent company of six of the top 10 dating apps by revenue including Tinder, Hinge, and Match.
Bumble's unique women-led platform likely helped it sweep up market share in recent years, growing from 10% in 2017 to 19% in 2020, at the expense of Tinder and Match. But Trainer said Bumble will need to continue doing this, as shares of Bumble are priced as if the company will eclipse the market share of Match Group.
Trainer also said that Bumble will need to continue increasing its average revenue per paying user to justify its valuation. Bumble has increased its average revenue per paying user (ARPPU) from $15 in 2019 to $18 through September 2020.
"Improving ARPPU while cutting costs - Bumble's total operating costs fell from 105% of revenue in 2018 to 81% of revenue in 2019 - is key to achieving consistent profitability," he added.
In its S-1, Bumble says that its global addressable market of 804 million singles is expected to grow to 981 million by 2025. Trainer said the opportunity to grow paying users is large, as the app currently has just 2.4 million paid users.
Trainer has been vocal about recent IPOs, calling DoorDash 'the most ridiculous IPO of 2020,' a title he gave to WeWork in 2019. But he said Bumble is different from other companies that have gone public lately because the dating-app achieved profitability in 2019.
The New Constructs CEO has a Neutral rating for Bumble stock. 