Chit Chat Stocks - Bumble (Ticker: BMBL) Not So Deep Dive

Episode Date: March 14, 2023

Bumble Inc. (Ticker: BMBL) is a popular online dating company with a focus on promoting safe and equitable interactions, empowering women, and driving innovation in the competitive dating market. At the end of the month, we will publish an Arch Capital episode that will cover the company: Match Group. Listen closely as Brett and Ryan go through the history, financials, and future prospects of Bumble. Enjoy the show! ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Contact us: [e-mail] Timestamps Company Background | (2:24) Industry | (17:15) Management & Ownership | (22:21) Earnings | (27:51) Balance Sheet | (31:20) Valuation | (34:15) Our Analysis | (35:25) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or recommendation. Now, please enjoy this episode. Welcome into Chit Chat Money. My name is Brett Schaefer, and I'm joined by my co-host, Ryan Henderson. Today is our Tuesday not-so-deep-dive episode where we analyze one

stock by covering its business model, ownership, financials, really everything. We're going to hit future growth opportunities, our own analysis, give you the numbers and the qualitative and the quantitative. After listening to this episode, we hope you get a better perspective on the company before making your own investment decisions. Today, we are covering Bumble to kick off our shows of online dating. We're going to hit Bumble, Grindr, Spark Networks, which is the fourth publicly traded online dating company that is extremely tiny. So that one will be interesting in its own light. And then the leader match group. But first, today's episode is presented by Stratosphere, the best web-based research terminal for company-specific metrics

like KPIs and segment revenues. We love Stratosphere over here at Chit Chat Money. It's very helpful for aggregating all the different KPIs we want across, I don't know, any company really out there. They're building up their library over time. It saves us time and efficiency and headaches when researching companies. Ryan is showing for any of the YouTube watchers or the Spotify watchers how the platform works. ditch Yahoo Finance and upgrade your investing home screen by using stratosphere.io. That is stratosphere.io. You can use it for free by going to check them out and tell them we sent you. All right, Ryan, let's get into Bumble. You're going to start out with the history today

and then getting into how they make money. Yeah, I'm actually going to work backwards this time. I think it's worth maybe doing this for maybe just in Bubble's case, because a lot of people know what online dating is, so it doesn't need an explanation necessarily of the business model first. But so I'll start with kind of how the business got started. So it's really kind of focused around one individual, at least on the Bumble side, which is Whitney Wolf Hurd. She's the current CEO, which Brett will talk about.

But right out of college, Whitney apparently met someone named Sean Rad. I think it was over some random dinner. She wasn't working at the time. And Rad was running an incubator in LA. And at the time, the incubator was working on, I think it was this business called Cardify. It didn't end up working out that well. But he invited Whitney to basically help out with all things marketing and sales. And so after pretty much failing with the product, the Cardify product, there was this side project that they were working on called Matchbox, which apparently unrelated, they had the same, they were on the same floor as match.com. But I don't think the incubator, I'm not sure what the relationship was with IAC at this point but um they were on the same floor as match.com matchbox would eventually become tinder and it was just maybe it was just this mobile focused matching service really hadn't had a

whole lot of attraction in terms of customer adoption so eventually they were like you know why don't we try that why don't we try to focus on this a little more after the cardify uh system kind of failed and um whitney's job was was really to go out there and i think this just kind of Whitney's, it wasn't necessarily her job as opposed to her idea. They're like, let me go to SMU, which was her school that she had gone to. And she was like 24 or 25 at the time. So let me go to SMU, talk to the sororities and get them on this matchbox or Tinder. I can't remember what the name was at the time. And so she would go around to the sororities, she'd get them on, and then she'd turn around, go over to the fraternities and say, there's a whole bunch

of you know single women on the on this app like you should go get onto the app and so the guys obviously did um and it really kind of worked in sort of these hyper localized areas where you it's kind of this college-centric approach the one area that it really worked was utah um she made she called this out in an interview before she was like byu this is going to be a hit um because you're you're tend to marry younger you kind of are supposed to have a significant other. If you're, I believe it's Mormon, you're supposed to have a significant other at kind of a younger age. And so people were using this a lot on BYU's campus. And so from there, it really kind of, you know, once you have a whole bunch of young college people on there, it's easier to

attract other people, especially once you kind of graduate up from college. But that's really where the approach started um and they saw tons of growth from this effort and there was a lot of cool kind of marketing stuff that she would do to get people it seemed like she was really um outgoing i would say like like kind of not afraid to kind of put herself out there and and put the product in front of people um and so it worked and however she had a breakup not only with the company, but one of the founders at Tinder. And so basically departed from the company. It was this really kind of tumultuous period for her. A lot of nasty things were said online, apparently, to her. She filed a sexual harassment lawsuit. And I'm not sure anything came of that. But

basically, she was on her own, out of work around early 2014, when a man named Andre Andreev, I believe is how you say it, apparently reached out to her and said, hey, do you want to come work for my company as the chief marketing officer. And Andreev was actually the founder of Badoo, which at the time was one of the most popular dating apps in the world, predominantly in Europe and Latin America. And I think he saw what she was doing with Tinder and said, you want to come work for me? And she said, no, I don't want to do that. I want to build my own thing. And so initially she had this idea to build a social media where it's women only, And you're just like giving each other positive affirmations. But instead, Andreev said, how about a woman-centric dating app where you focus on the female side of things? And he said he would fund that and Badu had had some success.

So that's where the relationship started. They were, I think, a 70%, 80% equity owner in Bumble at the time of the investment. And the model was pretty simple. She wanted women to be the first one to send a message, wanted this idea of empowering women in relationships. and I'll talk about that in a little bit, but she replicated that same model from Tinder where she just went around to college campuses. The spiel this time was, aren't you kind of tired of potentially being harassed on these dating apps? Aren't you tired of them

kind of having to make the first move? This is your chance to do that. It's women first. And so it worked this time with Bumble. However, I mean, this worked out, but it was really under kind of the magic lab umbrella. So from what I understand, the two companies were technically owned by a parent company called Magic Lab, which Andreev owned like 70, 80% of. However, in 2019, there was a sexual assault allegation or harassment allegations on Andreev and his company himself. So that year, Blackstone bought the stake away from Andreev.

And we're going to talk about the governance and ownership today. And so it's really Blackstone and Whitney Wolford. That year or a year later, they renamed the company Bumble. They made Whitney Wolford the CEO. and in February of 2021, the company went public. At some point along the way, I wasn't able to really parse through when this happened or when I think it was in conjunction with the Blackstone transaction. They took out a big chunk of debt. And so they've got, I'll talk about that on the balance sheet as well. They've got some debt now in there also, but with the IPO, they paid down

about $200 million worth of that debt from the money they raised. But to get to the business, Bumble is, as you imagine now, an online dating business with three different brands that operate generally independent of one another,

but they say they share some of the same tactical infrastructure. So if there's like safety changes made to Bumble, they can like use that and share it with Badoo and Fruits, which is another one that they own. And then each app runs basically this freemium model, but they all have kind of unique monetization strategies. So Bumble, that's really the majority of the business at this point. It accounts for 77% of overall revenue. And the core differentiator or value prop, as I mentioned, is that women are the primary focus.

So, for example, if you're heterosexual or you're straight and you make a match, women have to message first. Once that match is made, the woman has 24 hours to say something. So, if the 24 hours expires, the match is done. You can pay to extend it kind of thing, but it's generally done. Uh, then the man in this scenario would have 24 hours to respond to the, to the woman's comment. The app has about 2.2 million paying users. Now the, the registered users is kind of, or the active users, they don't really give that number out. Um, but I've seen estimates. Not very often.

It's not every quarter. Yeah. I've seen estimates that it's anywhere. I think it was like around when they had one, it's around 10 to 15% of active users are pain. So you can probably extrapolate it out, but it ebbs and flows. And then in terms of monetization, Bumble provides a number of different, both subscription and a la carte payment options for its users. So within subscriptions, you can purchase either seven day, 30 day or 90 day plans. It's like premium, it's Bumble boost or Bumble premium. And this

basically just provides, I think really one of the big benefits is that it gives you the ability to see who has liked your account. So for people that haven't been on the dating apps, the way this works is you can like somebody, they might not see it if they don't have a premium account. People can like your account, but you might not see those

until you come across them in the general feed and you both have a like. But if you pay for it, if you pay for the subscription, say you pay seven days, you can just go ahead and see everyone who's liked your account. It's a very powerful incentive, frankly.

Most people are willing to Especially if you've racked up You've been on the app for a while You have a good chunk of likes You want to see who's liked your account The other Functions include like extend So I've mentioned that there's the matching period

You can extend an extra 24 hours If someone If you really want them Want to give them a chance to match Rematch is another one So if you have an old match that expired or something, you can bring that back up. There's travel mode. This is kind of important too. And it's an interesting approach as to whether or not you should make this free if you're a company

or you should make it paid. But Bumble has it as a paid feature where you can change your location. So let's say you're going to New York for a weekend or something and you want to try to meet people at a bar or meet someone at a bar, that kind of thing. You can change your location in advance if you pay and move over there and kind of try to match with people in that geography. Incognito is another one, which is your account's basically just hidden unless you've liked someone, then they can see your account. But other than that, if you don't like them, they can't see your account. And then there's a la carte transaction. So you can super like, you can compliment someone without having to match first. Then there's Spotlight, which allows your profile

to be seen more by more people basically there's a whole bunch of different ways to monetize and kind of uh pay for different things if you're a user but then on top of that bumble also offers basically this core matching functionality for different verticals i guess you could say so and this people might laugh at this but there's one called bumble bff um where you're you're just looking for platonic relationships like friendships um and people like you know like why do you need the the dating app for it but i've i've seen this done before in like people actually use this if you move to a new city it's mostly young females but if you move to a new city um like you're looking for people to go out with looking for new friends bumble bff has it actually

I believe it's crossed more than millions of users. So there are a lot of people that are on there. And then there's Bumble Biz, which is like kind of, I think it's meant to be sort of a swipe feature version of like LinkedIn almost, like you're basically trying to find business partners. So that's overall Bumble. Ultimately, the major driver for the business here is paying for extra features to basically get people to see who likes you and make greater visibility on the dating apps. The other one is Badoo.

This was, as I mentioned, one of the largest dating apps globally. It was predominantly well-known across Europe and Latin America. It appears to be shrinking in relevance. But Badoo, they monetize really similar to Bumble. So they have the two subscriptions where you can basically just get a bunch of the same features. As for paying users, Badoo has roughly 1.2 million paying users. I think they have a lot more free users. And so their paying conversion is a lot lower than typical dating apps.

But it's still usually in the top four or five downloads. When I looked across a lot of the European markets, It's just kind of declining relative to, you know, Bumble is one that's beaten them out. And then Hinge and Tinder and in certain markets, there's more niche ones as well. And then the last one is Fruits. So Fruits is kind of this unique concept, I guess you could say. It's really popular in France. And so, and I guess it's worth saying Bumble acquired Fruits, I think for like 70 million

a year ago now. and the idea is that users are required to you set up your account and then you're required to select either a cherry a grape a watermelon or a peach which each indicates what your dating intentions are so whether you want like a serious relationship or something casual that kind of thing doesn't really have any financial contribution to the business yet but it remains to be seen if it will it's really kind of only popular in france right now but if they expand it out I think it'll be potentially a better concept or a bigger concept. Here's a quote from Whitney Wolfe, her last thing I'll say.

When asked about Fruits, she said, we bought Fruits because we've looked at over 90 dating businesses and the majority of them are inorganic growth. So they're propped up on spend and they're not really network effect businesses. Fruits was very organic. It was in the zeitgeist. Gen Z loves this product in France and they're definitely one of the most talented teams I've met in the space.

So positive comments there. sounds like it was more of, instead of just a whole bunch of marketing, they actually had this concept that people were fans of. Yeah, it seems interesting. We'll talk more about our opinions on these apps later. More anecdotes, more personal perspectives on their growth trajectories. But next up, we have industry and competition. Pretty easy to look here. If you take a look at some of the third-party estimates online, they vary widely. And it's kind of shocking that all the numbers are so bad because you can just add up the revenue numbers for the three big dating players,

which gets you to global spend of around $4.3 billion a year. For reference, Match Group is making up the vast majority of that at over $3 billion a year. Of course, there are going to be some other players out there, specifically the one that I see in the grossing charts is Raya. And then there are some obviously offline stuff as well, or not digital dating apps. So maybe we round up the online dating industries to about $5 billion and spend a year. I think an interesting discussion question is, how much larger is this number 10 years from now? And does it make sense that $5 billion are spent a year on these products?

And could it be much higher than that in the future? Yeah, $5 billion certainly seems achievable. And I think there's a number of ways to get there. That's what it is right now. Oh, yeah. I mean, I think there's, for one, I mean, the number of online daters is growing. I think a lot of people have seen that chart of how people meet, at least in the US, and online is becoming the most prevalent way to meet. But also, internationally, I mean, there's a lot of areas where there's still a stigma around online dating. I think as that stigma kind of comes down, that's automatic payer growth. But also, this is a really valuable service. So I think there's a lot of room for pretty much everyone across the board to increase the revenue per paying user that they get, which is, I mean, Fumble does a good job of it, but I think there'll be payer growth and average revenue per payer growth in total across the board. So yeah, I suspect this would be a much larger industry in five to 10 years.

yeah the way i think about it is there are people out there that used to go well still do i mean kind of the same amount um go to a bar or restaurant or wherever for a music festival or any place where you can meet significant others or potential significant owners and they'll spend hundreds of dollars so over a hundred dollars on drinks for one night and the way i think about it is you could do that or you could spend $25 today, probably $50 in 2030 to actually get dates through these apps. So yeah, but we'll talk about more anecdotes later. The competition is very easy to understand. You have the players that we're going to talk about throughout this monthly theme. You have Match Group who owns Tinder and Hinge and then Grindr. Grindr is for anyone that

doesn't know the LGBTQ, the non, really the app for basically everyone that's, and I guess we haven't covered them in close detail yet uh we're going to do that next week but it's basically a lot of people that aren't um heterosexual or aren't uh yeah just in that regard so we'll cover them later so they're not technically that big of a competitor to bumble and tinder or hinge although tinder bumble and hinge obviously do not um exclude those people on their apps and then that's really it you have those kind of big four competitors there's a lot of smaller players out there um you can include someone like raya who's on the top of the grocery charts as well but raya for anyone that doesn't know is really for it's a very

invite only for like celebrities or people with a million instagram followers that sort of thing so you're not really competing with the you have to pay yeah yeah and yeah um you you really can't go on there unless you get invited so it's not competing with the people on bumble tinder hinge it's those big three are competing right now and then i guess but do as well for bumble um so yeah that's really it very simple uh let's hit management and ownership though this is where it gets interesting ryan you have something to add here there's something you know we talked about this a little bit maybe we can talk about this more in anecdotal evidence but we're going to talk about the network effect here which is you know uh you're uh why don't why don't we save

that for because it's it's maybe a testament to like the industry growth and answering your question which is um the more people that are on these services like you know the more valuable services are so you want to get on and so that kind of creates a lot of user growth but i'm starting to see now in personal life where because this is an option and because so many people are on here it's becoming much more difficult to find dates create relationships in person that it's it's almost like the remaining pie has to get on the apps as opposed to or not wanting yeah Or never have a romantic relationship. Yeah.

Well, we know all that too well. And maybe that's just like the more mature markets, but I think that will probably add to user growth over time as well. Yeah. And then we'll talk about the bar analogies and stuff like that later. But yeah, let's get management and ownership. Bumble has some interesting management and ownership quirks. I guess interesting is a good word for it that I'll address in this section.

And as an aside, I want to be clear that none of it has to do with the founder or CEO being a woman. I would be saying the exact same things. if it was a man. The founder is Whitney Wolfe Hurd, like Ryan mentioned, started the company after leaving Tinder around 10 years ago, and she is only 33 years old. So she started this when she was extremely young. If we look at executive compensation, no, the size was not a huge concern for me. I'd watch out for periodic equity grants though. They did grant a big one in 2021 that might've been because of the IPO, but they didn't do much in 2022. But when we look at their annual bonuses, the targets are based on an equal mix. So 25% each of revenue growth,

adjusted EBITDA growth, MAU targets, and culture, which I don't think any of these are good for Bumble. I think revenue can be fine or like an ARR number can be fine for a subscription business. But for this type of business, you should be targeting just earnings growth, really. I mean, that's the key thing here. MAUs technically don't matter if you don't monetize any of them because you can pay for marketing to get a quote, monthly active user, right? And then you're just wasting marketing spend, but we'll get to that later. And then after doing the private equity deal with Bumble a few years ago, Blackstone still owns a large stake in this business. We'll have the ownership table within the newsletter, which I think can kind of show

everything here in better detail because I'm not going to go through everything on the audio or video portion here. But from a voting perspective, I think the only important thing here is that both Blackstone and Whitney Wolfe Herd have a tight grip on the voting power through these separate stock units, which for all intents and purposes, we can just call class B shares. And they own combined 90% plus voting power. So they control this business. There are also, when I was going through the proxy statement, a few things that concern me, and none of them are giant red flags. Well, one of them is, but they all add up to a bit of a red flag to me. So first, there's full control here by Blackstone and Hurd through the class B units.

They can screw outside shareholders and there's really nothing we can do here. That's the one red flag I had is the Blackstone has full control. Second, I saw that Whitney Wolford gets childcare benefits and full-time security paid for by the company when she is worth hundreds of millions of dollars. In my opinion, I think this shows a lack of frugality and integrity. Third, like I mentioned, is only 33 years old. This is a small one, but generally, I get nervous when a founder or CEO is less than 40 years old. It can lead to, as we all know, immaturity. But as someone who's run this for 10 years now, it's probably less of a concern than someone maybe that started it a couple years ago.

Fourth one, and this is one that's going to get confusing, but I think the most important thing is that the company is going to be paying the Class B shareholders money. There's a clause talked about in the Proxene Annual Report that states that Bumble, the holding company that you are buying as an individual buying the Class A common stock, is going to be forced to pay 85% of the tax incentives earned by the company back to Blackstone and Whitney Wolford and the other class B shareholders. While this was purposefully written to be extremely confusing, and it's possible I'm missing something here, I've tried to read it five times and I cannot get full clarity. This deal looks quite selfish, and it represents the self-dealing that I'm

concerned about. And if we look at a quick look at the 10K, it shows, I actually wrote 270, but it's 370. There's $369 million in deferred tax assets at the end of 2022, that they will be paying the majority of to these class B units. And if anyone's interested in the newsletter, I put a quote from the proxy statement that describes partially how this stuff works. And I would recommend trying to read that and not getting your brain in a pretzel because if you can understand this, your IQ has got to be like 200. And then fifth here, a few years ago, Heard took out a loan from the company.

I think in a vacuum, it's actually benefited the business because Heard paid back them an interest. But it feels a bit icky to me. It feels a bit risky to me. It wasn't the best look from my view when evaluating this management team. And then in a similar vein for the voting control stuff, I worry given their stock price that Blackstone might want to take under Bumble. My thing is, why wouldn't they at these prices? Who's going to object? And who can object? Nobody can object. And if her degrees, the founder CEO, and she can still maintain an ownership position, well, they might be able to screw over shelters, especially say if we buy today and the stock drops another 50%. Did you see the recent stock sale?

Did you see any news about that? I couldn't tell whether that was diluted or not. I actually did not check that out. But that's, yeah, because it's not- I'm pretty sure, I think Wolfer sold a big chunk of her stake. Let me double check that. That was really recent. But yeah, why don't you go into earnings?

Sure. Yeah, the business as a whole, they just wrapped up 2022. So this always makes earnings coverage a little easier for me because I can just do annual figures. basically $900 million in annual revenue. It's growing 19% year over year, 72% gross margins. The biggest payout here is payouts to the app store fees for every transaction. That's where their cost of revenue comes from. And then negative $114 million in net income. So they are GAAP unprofitable. However, I'll talk about why that is. They do have $133 million in operating

cash flow. The two big discrepancies there, or what's making up the differential is, one, they do pay out a lot of stock-based compensation, which is more a structural issue. So $111 million in stock-based compensation. So if you just did operating cash flow minus the SBC, they're basically breakeven profitability-wise. But there was also a $145 million impairment charge to Bidu. Management on the conference call basically said this is because they're exiting the Russia and Ukraine businesses, and they had a decent-sized presence there. I think they actually had a decent amount of employees there as well. So a big impairment charge, at least relative to Bumble's earnings. However, my concern, I guess, is that the Russia

and Ukraine exit isn't painting the whole story and that maybe there's some actual struggles at Bidu beyond just exiting those businesses in terms of like attracting users. It's also a nice way to get those tax incentives up, I'd say. Yeah, that's true. Overall, 3.2 million paying users

across all the services. Most of those are Bumble. Bumble is growing as paying users at 34% relative to last year. BADU is decreasing theirs by 11%. So really, it's kind of a good company, bad company situation here. At least that's what it looks like for the 2022 fiscal year. And then the total average revenue per paying user is $23.03. It's growing, or it grew this year, but the average revenue per paying user at Bumble is much higher and it's much lower at BADU. So you're getting roughly $29

in average revenue per paying user each month on the Bumble service. So, which is, I believe that's like best in class relative to peers. Hinge is better, but yeah. I thought Hinge was right around 25 right now. I'll confirm. I'll confirm while you're going.

But it's, you know, people are willing to pay for the service. And then it's worth noting that there's sort of a, The international mix matters there as well. Tinder, for example, is in a lot of international markets where the propensity to pay is probably lower. You're going to get a lower average revenue per paying user in those cases, which Bumble's expanding internationally as well. you could expect average revenue per paying user to kind of come down because of that market shift. But if they raise prices, maybe it offsets it somewhat as well. Talking to the balance sheet, they have $403 million in cash-to-cash equivalents. They generate more than $100 million in annual operating cash flow. But liability side,

they've got over $600 million in total debt, all of it's long-term, but it's all one variable rate 2027 term loan. And the expense, the interest expense as a percentage of overall debt was about 4%. So to kind of offset the variable rate risk, they have this, and maybe this is one of the benefits of potentially Blackstone being an owner is they really know how to, they're good when it comes to cap structures. They have a large book of interest rate swaps. During the year, they booked a $10.5 million increase in net gains on their interest rate swaps. So this offset about half of their interest expense. So it does kind of mitigate some of the variable rate concerns. However, all else equal, or maybe not all equal, for every 1% increase in rates, even taking into

account the interest rate swaps, they estimate it's an additional $2.8 million in annual interest expenses. So interest expense will go up in a higher rate environment. Basically, net debt, they've got $225 million in net debt. So net debt position, $133 million in annual operating cash flow, and the business continues to grow. My concern here is that But the debt holders or the lenders don't care how much you put into stock-based compensation because you're paying them back in cash. So if you have $150 million in operating cash flow and you boost your stock-based compensation, you're still freeing up money to pay back your lenders, but it's at the expense of shareholders. However, they haven't seemed to do that so far. Stock-based compensation actually came down year over year. I imagine part of that's because of their exit of the Russia business, which had, I think it was like 100 plus employees in Russia. Also comp in the IPO.

Oh, that's true. Yeah, that too. But I would just keep an eye on that given that they're going to have to pay this debt down over the next, well, it's really not due until 2027, but they're going to have to pay it down. You don't want them doing that at the expense of minority shareholders. Yep. Don't look at adjusted EBITDA either. And then on the hinge, yes, you're right. $25 revenue per payer. But if hinge continues on its growth and revenue per pair they'll pass bumble this year or become equal or pass them kind of depending this year so yeah both bumble now we'll talk about that on the match group one but let me hit valuation a pretty simple one market cap i have it at three point oh wow the

market's down well the newsletter is going to be different um because their stock's kind of down a lot today but it's 3.8 billion and then i put the enterprise value at 4.4 billion if you include the tax liabilities that blackstone and heard are going to get as a part of the net if i include that in the net debt even though it's not technically dead it is a liability that you the common stockholder are going to be paying back to them generally and then i have a few different metrics here that i think are relevant we have ebd gross profit 6.7 evd operating income is negative not too relevant but some of the track over time and then evita free cash flow i have at 38. so pretty expensive given that cash flow number with a lot of sbc however they are still

expanding that free cashflow margin. And if you kind of look at match groups numbers, you can expect that free cashflow margin to continue to expand. And then another one I think is important is looking at specifically the enterprise value to Bumble app revenues. And that is 6.4. So pretty expensive on that regard as well, but not overly expensive, even if you exclude all of Badoo. Okay. Anecdotal evidence. This one will be fun. And Ryan, what do you think? Yeah, no longer. I guess this is a humble brag.

No longer on the dating app lifestyle, but... Hopefully permanently, right? Permanently, hopefully, yeah. But this, I mean, this is certainly one of the big three brands in the US. I was a user of basically the way I did it. And I think a lot of people probably do this. At the start, I had just like an online dating folder in my phone and I just had Tinder Bumble Hinge. Eventually ended up just going only to Hinge. I think generally as you age, like past the college years, you're probably more focused on like the Bumble Hinge side of things. And some are better for others, right? Yeah. And some are better for others. It's kind of individual, right?

Right. But yeah, you know, to be honest, the whole like women-centric, basically a lot of the spiel is that like they've completely inverted the dating realm by like putting the power in the hands of the women. like the services aren't that different to be honest um in terms of like dynamics a lot of it like the woman having a message first like a lot of the times it's like a they'll send like a space or a hey you know it's they send two things to me they send hey with like four e's and then or the emoji that has the hand wave so really you it's not changing anything it's yeah i mean it's just better for safety though it's better for safety but it's not really from a financial perspective if it's not doesn't change much 100 yeah um so i you know i don't think there's that much differentiation at least in the u.s um uh between tinder and bumble hinge is kind of a different

i would say bumble kind of sits in terms of user experience kind of sits or maybe user demographics it sits between hinge and tinder um yep that's at least the the way the what it's like in the US. I'm curious on your experience in Chile, if you don't mind sharing. Yeah, both Bumble and Tinder are good, but Hinge isn't here. I mean, there's like

usually there's no one on it. I checked, and yeah, both of them work fairly well. So, yeah, but I personally find that Bumble is a little bit, I feel like they and maybe this works from a monetization perspective,

but they don't have as good of tactics for keeping people coming back to the app because they make you wait a really long time before you can have more swipes. They don't give you as many swipes. And it's just, if you kind of get what I mean there, where Tinder, on the other hand, while they've had their issues, we'll talk about on the Match Group episode, they're much better at getting people back to the application to get that liquidity up. Okay. My anecdotal evidence, yeah, same thing. Bumble app is good. It's kind of one of the big three apps around the world and as we'll talk about on the match group episode hinge is kind of going to replace badu and there's not it's not a guarantee but it it's almost set in stone um i i mean we don't i don't

want to sound too confident but the the numbers look like it's going to happen in looking at the downloads or the sensor tower data a lot of the times in the areas where hinge has officially launched it's replaced badu either as the second or third app um and then even in the areas where it hasn't officially launched it's like playing forth relative to but do because people are downloading it already in anticipation of the launch or they're downloading it in not their native language or you know pretending to locate somewhere else yeah halo effects in europe and stuff like that yeah and here's another piece of anecdotal evidence that um a friend talked about with us an investing friend when comparing if you kind of compare dating apps to bars um in your

town, there's usually three or four, there's usually probably, well, depending on the size, but there's more than three or four bars, but there's usually three or four bars that people go to regularly. There's not one, but there's probably three or four. And that's why people use multiple dating apps consistently because you want this mix of things. And if you can become one of the three or four clear bars that people go to on a regular basis, you have a competitive advantage, especially if it's one for people that are looking for romantic relationships. So that's how I would think about the dating apps. But yeah, and generally I have the same thing here.

I worry just anecdotally about Badoo really hemorrhaging users as both Bumble and Hinge move internationally and kind of take those three, four bars. And I also worry as Hinge is moving internationally that they can slow down or compete with some of the greenfield opportunities that Bumble seems to be taking quite easily right now. But let's move to future growth opportunities. Ryan, what do you think here? yeah i mean uh i think he probably took the only kind of non-expected one but i mean it's hard to like come up with anything new because the formula for growth in online dating is pretty simple like you launch in new markets um you advertise um you try to like hyper localize get people on the app bumble does a really good job of that and then the network effect kind of takes care of the rest

Especially if you have good brand awareness like Bumble, where you're already popular in a lot of European markets, launching into the next European market is pretty easy. The network effect really takes care of everything. Beyond that, that's the simple model. That's what's going to drive growth for the business. If I were a shareholder, I would not be against making some of these acquisitions of smaller players. And so let's get right here. That's gotta be a good business. Yeah. I don't know if they're, if they're, I'm sure they've all made acquisition, uh, talks to them, but they're probably not selling. yeah and i mean um you got like it's basically someone asked whitney wolf heard on this i think it was at the morgan stanley conference for tech and media or something and basically said like

are you trying to be a branded house or a house of brands like are you trying to be you know like let bumble go organically or do you want to become part of a match group like situation. She said they are not trying to be a house of brands. In my opinion, you've got the marketing chops as Bumble. You've got the resources to scale niche concepts. Why not take some of these really unique concepts that have done well and like fruits in very particular markets? If you see the application to go wide with it, you've got the resources to do it. I would say go for it or at least obviously do it responsibly um don't just start acquiring everything but um i like that approach you can pay a premium when you have the the marketing know-how and this and

this scale or the resources or the resources to scale something like this because that's the thing prohibiting a lot of these smaller businesses from growing yeah i do worry that that i'll talk about in my section because i'm gonna have fruits here but i do worry that they haven't shown a track record of doing that. So we'll TBD and it's better if you can kind of be diversified and not betting on just Bumble, the Bumble app, because there are threats out there specifically as Hinge rolls internationally. It's TBD who's going to really... What percent of the market is going to go to Hinge versus Bumble? And it's probably both going to win. But again, betting on that one horse is a little bit tougher. But my future growth opportunity is

going to be fruits acquisition deal with $70 million. There might be some contingent payout clauses, but didn't really look at that for this episode. Like Ryan mentioned, popular dating app in France with the innovative way to talk about your intentions of or what you're looking for, but classifying yourself as a fruit. It's currently just for reference, fifth top grossing dating app or excuse me, grossing app on the French app store under the lifestyle category and Tinder is one, Bumble is two. Do you think they can scale the fruits app across more countries because that seems to be their intention here is there room because i feel like the setting your intention stuff all the apps have now copied um what

fruits kind of innovated on obviously without the fruit part yeah that is an interesting idea and maybe that's a testament to like the moat of the bigger brands that you can just copy functionality like it's it's like what it's like what facebook has basically done to every other business where okay you you launch stories we'll launch stories um you launch short form video we'll launch short form video and it's like everything's kind of copyable in this industry so um maybe you're right maybe maybe it's really hard to scale some of those smaller concepts yeah i'd be worried about it but who knows if they can succeed on bringing this concept internationally maybe there's room for a fourth player for the younger generations and that could

be very uh no pun intended and fruitful no pun very intended but let's go to highlights and lowlights ryan what do you like dislike about this one uh i like that basically they've done a better job monetizing than peers uh they provide a lot of different payment options and different if i haven't been on the apps in a while but if i remember correctly they have different duration plans than Tinder. Yeah, they should have done that a long time ago.

If you're a... Well, just think about a vacation. Yeah, right? If you're one of these apps, you should roll out as many payment options as possible. Think about Spring Break in Cabo, Spring Break in Florida, wherever else

everyone goes, right? Spring Break in Cancun. You get a week in there, or a week, you have a 50% of the price of the monthly and you're going to get way more. We don't need to do a study on that. It's going to work. And I don't...

And the more important thing is it drives liquidity because the more people are swiping or making the likes or whatever, the better the more the network effect is solidified. Yeah, I mean, the other part is a lot of these are impulse

buys, like people that are making purchases on this platform it's not necessarily like a well-thought-out decision um so really not thinking with your brain give people the option to do something whereas like i'm sure there's a lot of people that have bought a monthly pass and then deleted the app in like a week where so it's like give them a lot more of these a la carte things which i think bumble's done a really good job rolling that stuff out they generate best in class average revenue per paying user. I mean, you think about the different demographics that Bumble is targeting versus Hinge. It's very surprising that they have a higher average revenue per paying

user than Hinge because Hinge targets more affluent, higher propensity to spend customers. When we do match group though, I'm going to make sure we look at the definitions of average revenue per payer because there could be something that's causing that to happen. So we'll have to look at the definition of how they're calculating it. Yeah, I looked at Bumbles and it seems fairly common. Yeah, I'm sure it's rational, but we got to make sure it's the same because then it might not be apples to apples. Second one, they've got a proven track record of growth, plus there's operating leverage here. So Bumble's proven it can successfully enter new markets.

At this point, the network effect kind of takes care of itself. The brand is well known. um you can and essentially when the brand's well known people download the app without having to be told to do so which is just low cost acquisitions which means better margins at scale i could see this having very tinder like margins at some point which is north of 30 percent um yeah i mean the you know that's like the most attractive part of this business is the the network effect and the potential operating leverage uh third one for me is the industry tailwind um this benefits a lot of the players in the industry but uh we've all seen the chart

probably seen real life examples but online dating in general is growing across the globe ignore those ignore those clickbait pieces that come out once a month it is not true for anyone that's married or whatever it is not true uh the last one upside if the apps for fees come down anyway i'll maybe talk about one of the bear cases that people talk that people cite all the time, which is like, if you do a good job, your users will leave you. Yeah, I mean, that is true. But payers have continued to rise. The amount of people paying for the service has continued to rise and the value of the service that people are willing to pay for continues to rise as well. So that offsets any... And also, I think the US,

And some reports show that like 75% of millennials in Gen Z report being lonely. So there's plenty of a pool for potential customers. It just doesn't seem like that bear case has played out over the last 10 years. And just think about it. In what world is the entire single market? Like everyone's going to be single or not. Excuse me. Everyone that's single is not going to be single.

It's just, it filters through. the percentage of people that are single might change slightly but it's not going to go to zero i mean what are you talking about it's that one that makes no sense to me i mean don't express don't expect an enterprise sas lock-in but basically if you're a big brand in here you don't have to do anything to acquire these users anymore really you can just usually yeah and they're already downloaded on the app your profile is probably you know you hide it or whatever um but it's it's there for you to start up again if or when you cycle through again yeah i mean the word of mouth marketing here is insane like it really is one of those things that's like

becomes as whitney for part of the zeitgeist people talk about it all the time uh in personal like in general conversations uh lowlights for me though the governance um you talked about this i think we're gonna have really there's two obvious lowlights here which is the government on top of the weird complexity which makes it feel like they're not really focused on minority shareholders when i don't know about whitney wolf's herd's ability uh to like allocate capital successfully beyond um what they've done or just rationally like it seems like someone who might be going for big over, uh, free cash. Yeah. Yeah. Yep. Yep. Um, no doubt. She's an exceptional marketer. If you go and listen to her interview on how I built this, you can just, you can instantly tell

like some of these ideas were just like, she's very, uh, she's got a lot of creativity and how to build these brands, but a great marketer isn't necessarily the perfect CEO in terms of generate an increasing free cash flow for shareholders. So that's maybe one of my concerns. Maybe over time she could prove it, but so far there's not a whole lot of proof. She's only been the CEO for three or four years. Bidu just seems to be declining in relevance. Some of the numbers are attributable to the Russia-Ukraine exit, but also it looks like most of the markets where Hinge has launched, they're quickly replacing Bidu on the top grossing charts. So that would be a concern for me, is expecting that business to continue to

decline. Yep. All right. My highlights, still quick, because I have similar ones here. Yeah, the payer growth at Bumble has been steady. I shared that chart for the video watchers where Bumble's paying users have grown at a compound annual growth rate of 37% over the last four years, which is really impressive. Second, unit economics for the dating apps are strong they have 70 gross margins even with the high uh fees played to paid to mobile app stores and third the network effects where they i think they have long-term competitive advantages before this if they are nurtured correctly we'll talk about what we talked about but do not being nurtured correctly um we talk we'll talk about a match group how tinder kind of dropped the ball

for a few years and is still doing fine, but has seen some cracks that they're trying to cover up or not cover up, but fix. And the key here is that each person that joins Bumble makes the platform that much more valuable for everyone else in that geographical area. And the bigger the city, the more valuable it can be. There's a reason I use Tinder or Bumble, no matter where I am in the world, and that's some third rate app ranked 50th on the lifestyle category on iOS. I mean, it's just not going to happen. You're not going to have the same outcome for the same price, or even if you're not paying at all. Lowlights are the exact same as yours. So let's move to Bullcase. Ryan,

what are your numbers? What do you outline here? What could go right? Yeah, I'll just walk through some of the numbers to paint a picture for people that are trying to look at the financial situation. My two assumptions here are basically Bumble continues to grow and Bidu slowly declines, but they run it for cash. So this is a four-year projection. Over the next four years, if Bumble grows revenue at 15% annually, which I know that sounds optimistic, they are growing faster than that right now. They're guiding for faster growth than that. But also, I just think it's doable for a business of this quality to continue to grow because, one, they have the overall industry tailwind,

but they have the brand to constantly be in the top two, top three apps. There's really durable growth once you're at the top in this industry. If you look at Tinder over the last seven years, you can see that. And then my other assumption is that they have 30% operating margins at maturity. I wouldn't be surprised if they have close to that now. Can't tell what the SBC added back, and they don't break it out, but I would assume that at maturity, this is more than a 30% operating margin business. If those two things work out, they'll be generating $364 million in operating income in 2026. Now, on the Bidu side, if Bidu's revenue shrinks by 2% each year, which I think is – given the outsized losses from Ukraine and Russia exit this year, maybe it's a smaller shrinking base.

That's, I think, reasonable, maybe even optimistic. And then they also generate 15% operating margins. Like I said, they run it for cash. It would be $30 million in annual operating income. So really, most of this business is all Bumble at that point. Together, they'd be doing about $400 million in annual operating income. You value that at 17 times, which I think is also maybe fair to optimistic. This is the bull case.

You've got about a $6.8 billion market cap. That's roughly 70% higher than current prices. Plus, you get the upside of fruit. So 70% higher over three or four years. SBC is going to knock that down to about 40% though given what is in Big 10 but yeah

maybe you could just assume that all cash flows is buyback yeah that's true you haven't taken into account those cash flows but yeah I was just basically if BEDU stabilizes

and Bumble continues on its trajectory and And they are rational around costs. They're going to make, this will be a good investment. And then there's kind of a call option in fruits if that ends up being anything in other markets beyond France. Yeah. All right. Mine is going to be, if you look at today's price,

we got an EV to gross profit of about seven, and that is including the tax liabilities. If Bumble can reach, and I'm saying consolidate here, about 30% operating margins like Match Group, as Ryan mentioned. And I would say for reference, Tinder reportedly has operating margins of 50%. However, I'll put this in the newsletter. Well, I have a chart of their S&M spend as a percentage of gross profit. And Bumble as a consolidated company has hovered around 40%.

But if you look at Match Group as a whole, it was at 24% in 2022. So Match Group is much, much more efficient. So when you look at that Tinder operating margin, I don't think Bumble is ever going to get there unless we get App Store fee compression. but at if you put 30 operating margins on the current multiple of revenues operating or excuse me on the current ev and then uh with that operating income that would be 17 times that's last year's revenue and last year's say estimated operating income at 30 margins even if they have you know interest payment headwinds a lot of share delusion which i would

look up yourself it's coming um the stock will likely do well over the next five years if bumble can grow its revenue at 15 a year i'm saying the bumble uh as a consult as a consolidated basis but let's go to bear case ryan what do you think uh well i think at this point investors mostly only care about the bumble specific brand like but do you could x to zero and the valuation probably wouldn't change that much um i mean it would but like what this thing's worth in five to ten years is based on Bumble. So if Bumble's, I mean, it's pretty simple.

If Bumble's user growth begins to slow, investors would get hurt. It's hard to see why that would happen, but you could have said the same thing for Bidu three or four,

five years ago. It's a little longer than that, but yeah, it's been stagnating for a while. Really? Yeah. I mean, it's just, it's been very,

it's been stagnant for five years. Yeah. It's hard to see what would come that would replace Bumble, But I think it's always possible. It's really hard to climb the wall of success in online dating at this point because people want to go to the apps where there's already so many people and everything's so copyable, like any unique features. So, I don't know. I mean, it's really tough to replace, I think, the top three, but it's been done before. Badoo was one of the top ones for a while, but that would be the big thing. Or cash just never gets returned to shareholders or there's anything that happens that's self-serving.

Yeah, well, that SBC is rough. And yeah, my barricade is going to be Blackstone. Look, I'm not going to invest in a company where I'm the minority shareholder to Blackstone with no control. It's just never going to happen. So, that's it. All right. More or less interested. Ryan. Well, I want to look into this, I guess, recent stock sale. If Blackstone starts to relinquish shares to the public, I'd certainly be more interested. I don't necessarily feel that great about Whitney Wolford as the primary capital allocator. Great marketer, no doubt about it. But if she proves out, like maybe with this fruits acquisition, if she proves that this can like really scale across different markets, that would give me better sense of who she is as a capital allocator. But like, I'm certainly interested in the Bumble brand.

There's just some governance stuff that keeps me away. Yep. I'm in the same boat. If Blackstone's gone and at the right price, I'm in. Yeah. All right. Stock for next week is going to be Grindr. like we mentioned, the LGBTQ app. As a reminder, housekeeping items as we wrap up, if you're a

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