As fears of the COVID-19 outbreak gradually fade, coinciding with reduced government-mandated restrictions on mobility, the narrative for dating app Bumble (BMBL) should theoretically brighten. However, the company’s latest earnings report suggests otherwise. As well, Wall Street has not been kind to Bumble since its initial public offering last year, meaning that management must make significant changes. However, these changes don’t appear to be materializing imminently; thus, I am bearish on BMBL stock.
When the global health crisis forced the U.S. and most other countries into a radical new paradigm, the sudden social isolation imposed substantial hardships on just about everyone. However, as The New York Times pointed out, some demographic cohorts fared better than others. In particular, being single during COVID-19 exacerbated the already desperate loneliness that shelter-in-place orders sparked.
At the same time, many forward-thinking investors viewed the crisis from the classic framework that this too shall pass, and once the SARS-CoV-2 virus becomes the exclusive domain of the rearview mirror, BMBL stock would likely benefit from the pent-up demand effect. The concept previously worked for the consumer discretionary economy (retail revenge), and it’s currently panning out for many companies in the broader mobility sector (revenge travel).
Though it’s highly unlikely that the term “revenge dating” would become popularized, the concept still stands: pent-up angst can create enormous demand channels. Unfortunately, this dynamic hasn’t translated into positive shareholder returns for BMBL stock.
Last year in February, Bumble priced its IPO at $43 per share. Since then, Nov. 10 represented the last time BMBL stock closed a session at a higher price than its initial offering. In other words, something significant must change at the company, but such change doesn’t appear to be on the horizon.
Bumble Stock Analysis
On TipRanks, BMBL has an 8 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
BMBL Stock Struggles amid Earnings Disappointment
On paper, Bumble’s second quarter of 2022 earnings report represented a mixed bag. On the more encouraging front, the dating app – which also owns Badoo and Fruitz – reported revenue of $220.5 million, an 18% gain from the year-ago level. Also, the tally just sneaked past analysts’ consensus target.
However, the hits to BMBL stock started coming when management disclosed its full-year 2022 sales guidance, cutting it down to between $920 million and $930 million. Previously, the underlying firm expected to ring up between $934 million and $944 million. Also, data from Refinitiv mentioned that analysts were targeting $934.1 million in revenue.
To be fair, Bumble’s disappointments stemmed from factors beyond its control. For instance, Russia’s military aggression in Ukraine forced Bumble to take a moral stand. Per Reuters, the company made the decision to exit Russia and Belarus, removing all of its apps from popular connected ecosystems.
In addition, a strong U.S. dollar relative to other international currencies didn’t help BMBL stock. Bumble’s app Badoo – which is popular in western Europe – struggled because it “serves a more economically sensitive user base,” according to Bumble’s CEO during the Q2 earnings call.
However, Bumble can’t claim to be completely a victim of unforeseen circumstances. As Reuters mentioned, the company has been grappling with stiff competition, especially from rival Match Group (MTCH). Management could do something, but it would involve a pivot that it might consider anathema to its core brand.
Bumble Stock and the Demographic Imbalance
One attribute that distinguishes Bumble from other dating platforms is that women make the first move. It’s a novel concept, one which the company hopes will inspire women to take ownership in other areas of their lives. At the same time, the decision also stymies the male user experience.
According to Wolfe Herd, “Once people get a sense of how ridiculous the notion of men having to make the first move is, they tend to see things more clearly … Women are encouraged to go after everything they want in life except for a partner, and that’s nothing short of ridiculous. Our mission is to encourage women to make the first move in all facets of their life, and every day we’re helping to change the way people think.”
While the Bumble chief executive deserves all the credit in the world for helping to advance staid social mores, the decision to prevent men from initiating communications with women necessarily means that the dating app is inviting frustrated users to switch to the competition. Is there any better marketing tool for Match than to say that it lets everyone use its platform however they see fit (within established norms and guidelines)?
Further, the decision to stick with the pro-feminist interface perplexes amid multiple headwinds. Again, from the Russia invasion to soaring inflation to cutthroat competition, Bumble needs a breakthrough. It’s not going to do it by refusing to provide equal functional access to half the potential addressable market.
Is BMBL a Good Stock to Buy?
Turning to Wall Street, BMBL stock has a Moderate Buy consensus rating based on eight Buys, four Holds, and no Sells assigned in the past three months. The average BMBL price target is $35.45, implying 13.5% upside potential.
Takeaway – Something Has to Give to Stop Bumble Stock’s Struggles
Fundamentally, the concept of providing a dating service is extremely relevant at this juncture. With people eager to regain their social lives following two years of lockdowns and mitigation measures, Bumble offers a much-desired product. Nevertheless, Bumble isn’t the only game in town. With other companies offering similar platforms – and less-restrictive ones at that – BMBL stock is struggling. At least part of the pain, though, is self-inflicted.
