STOCK BRIEF | BUMBLE (BMBL)

Key Takeaways:

Whitney Wolfe Herd (Bumble Founder and CEO)

• On Bumble's inception and evolution

• Whitney Wolfe Herd created Bumble to cater to women looking to control the dating process.  It's expanded from that concept to envelope a host of products.

• "So we started with dating, and our dating apps have performed very well. And then in 2016, we launched Bumble BFF for friends finding, and that continues to progressed really nicely. We actually ended up when Blackstone took stake in 2019, merging all of our brands really together. And now we're Bumble Inc. with kind of this overarching theme of kind connections. We went public in 2021, and we are now comprised of Bumble apps, Badoo and Fruitz, and we're really excited to be here"

• On the macro environment

• Bumble / online dating in general is resilient in the face of economic downturns because the demand for love, friendship, connection doesn't ebb and flow with the economy

• "The relative value of our boost level or a premium subscription level is actually quite extraordinary for the scale of the folks that you have the opportunity to connect with and the safety, right? You have photo verification. You have all these blocking report tools. And we really fundamentally believe that this is super resilient in an environment where people might be counting their spend a little more closely."

• On app growth in 2022, key drivers for 2023

• Bumble guided to 450K-500K net adds for 2023

• Q1 net adds should be between 90K-95L, each subsequent quarter will grow

• Q4 is a seasonally weaker quarter so expect a sequential decline

• On key drivers: "A lot of it is really driven by the strong product road map that we have. It's also heavily driven by growth in overall top of the funnel, right? The growth in users, both in existing markets as well as the newer markets. And it's also heavily driven by the -- always on payer optimization efforts that we have. And this is the stuff that is not obvious when you see it on the surface, but it's the stuff that really moves the needle for us in terms of driving payer conversion."

• On Bumble ARPU and lower monetizing regions

• "We really think about monetization in the form of a barbell, if you will. So there are some folks out there, say, college students, for example, who don't have a propensity to pay $40 a month. But we do have a premium audience, slightly more mature in their relationship journey who would be willing to pay a lot more than $40 a month."

• "In the near term, we are -- as we've said in our earnings call, we are working on bundling some more Gen Z-relevant product features. So we're working on a lower tier bundle subscription offering that will let Gen Z really express themselves and connect with each other in really kind of Gen Z friendly ways that will be offered at a lower price point."

• On market launch to monetization and highest contributing regions

• Said the Bumble playbook is consistent wherever you go, so plan to launch is typically the same

• "Our localization team is just top of the line. And so we have this really unique opportunity to both localize the product, but also the strategy in which we enter our market."

• "Within the international markets, Western Europe will be a nice contributor for us this year. We obviously have talked about Germany in the past. We want to ramp up payer a conversion in Germany now that we have a sizable MAU base there. Other markets in Western Europe, we also expect will be a healthy contributor to overall revenue. We've called out India in the past. It's a good market for us. And then from a new market perspective, we want to be more aggressive in parts of Southeast Asia, parts of LatAm. There are some markets where we've entered into in the past years, so we want to ramp those up as well."

• On Compliments, user reaction, plans to monetize

• Compliments is a new feature designed to bridge the gap between match and message

• "It's the pre-match kind of engagement opportunity. And so the way it works, you kind of think about it as a super swipe with context. So the context in this case, is a compliment. And again, this comes back to the founding initiative of a kinder, safer space, engineering positivity not toxicity. It's been really resonant so far. We're excited. It has a very high conversion rate."

• "And from a revenue standpoint, we are definitely excited about the contribution that this is already providing. And we've baked this into our guide, and we're excited to also explore the further acceleration of these type of pro-social prematch opportunities, which we think is a huge unlock."

• Expect Compliments to ramp through the year

• On other products to be excited about

• Wolfe said they've invested in optimizing under the hood and focusing on things like their recommendation engine, machine learning

• Says they're excited to roll out and launch "a lot of these innovative products that we've been kind of exploring for a while"

• "I'm really excited about Best Bees for a few reasons. I can't tell you how many people have directly asked me, how do I get the secret algorithm of the best people. Like this is like the first question I get when I meet someone. We get flooded with this request internally. And so finally, with our super-sophisticated technology, machine learning, AI and our matching recommendation engine, we will finally be able to deliver every single person the Best Bees."

• On margin expansion, room for leverage

• "So we as we said on our call, we are definitely committed to at least 100 basis points of margin expansion this year. Q1 seasonally does tend to be a lower quarter for us. It was similar in 2022 as well. We do spend to -- we do tend to spend more on marketing in the first half of the year. Q1 is strong, leading to Valentine's Day and then Q2 we spend leading up to the summer. And you should definitely start to see leverage on the sales and marketing line as we go through the rest of the year."

• "Overall, on a full year basis, sales and marketing is an area we expect to see leverage. We, in Q1, also expect to see our cost of revenue go up a little bit. Again, if you remember, we adopted Google Play halfway through last year. So we are starting to lap that fully. So we'll annualize the impact of that"

• "We've said this before, the bar for investment in things like headcount is very high."

• On marketing spend in 2023

• Reiterates their organic approach to marketing, which is based heavily around college campus recruitment programs and being "off-the-wall"

• "So nothing has really changed for us in terms of what we intend to do it and the threshold for what return looks like for the spend that we have. So we feel pretty good about where our business is shaping up for the year."

• With regards to marketing as a percentage of sales, "I think it's definitely an area where we have deliberately invested in primarily for investment from a brand perspective. It is also an area, and we've said this before, where we definitely expect to see leverage in the medium term, especially as we start to work towards our margin expansion goals."

• On the BFF roadmap

• BFF is not a standalone product on Bumble - it's integrated into the larger experience and designed to bring a new type of customer to the app whereby people can match with friends, instead of romantic interests

• "We are really focused in the near term on making the product extremely Gen Z-friendly and really focused on that young kind of college/post-college-aged women. This is a product that is growing really organically. It was up 26% in our last earnings call, the number we disclosed. We did disclose another number in the past, which we've not updated, which was 15% of the dating audience on Bumble app is actually already using BFF. So you can see the overlap and the resonance there."

• "And then monetization. Another thing we do at Bumble is monetization by design. So we don't build a feature and then like 6 months later wonder how to monetize it. We have monetization in mind from the onset like safety, like the happiness and joy of women. It doesn't mean we turn on monetization day 1. So for context, when we were setting up Bundle in 2014 and wire-framing it, we did not want to monetize right away. We wanted to build up a core audience, a user base, and then be able to turn all these levers on. So the monetization was already pretty well established in our minds, and then it took us 2 years to actually turn it on."

• "So with BFF, I'm not saying it's 2 years, I'm not committing to a time line. But we are pretty clear on how we would bake in monetization journey. And for the near term, it's just really all about customer satisfaction and accelerating the growth rate."

• On capital allocation

• "Our focus right now is really on reinvesting in our business. We still have a ton of organic growth that we can go capture, right? So we are very heavily focused from a capital allocation perspective on that."

• "We've also publicly, historically talked about M&A as an option for us. We want to be selective about how we think about M&A."

• On the future of the Bumble brand

• Wants to keep Bumble as a branded house, not a house of brands like Match Group

Please call or e-mail with any questions.

Andrew Freedman, CFA

Managing Director
@HedgeyeComm