Bumble seeks to Ride the IPO Wave of 2021
Issue 2 (21/01/2021) - How has Bumble disrupted the dating market and what does an IPO mean for them?
Welcome to Issue 2 of Startupology! I hope you all enjoy!
Whether you use it to date, for business, or to find your next best friend, Bumble has been the call to action for many people, especially in USA and Canada. Founded by the Tinder Co-Founder, Whitney Wolfe Herd, Bumble launched in 2014 with a twist: women made the first move. This fantastic niche and pivot in the social and dating app industry not only empowered women and reduced the opportunity for harassment, but proved to be a phenomenal hook to many investors and venture capitalists. In the last 6 years, Bumble has become among the fastest growing companies, establishing itself as a powerhouse in the industry. They seek to consolidate their growth and promote newer opportunities through their unscheduled, yet definite IPO in what seems like the next few months.
I think Bumble’s path to success is best described by Avery Hartmans, at Business Insider who titled the article “How Bumble grew from a female-focused dating app to a global behemoth that's reportedly headed toward an IPO valued at more than $6 billion”. The app was founded by Whitney Wolfe Herd and Andrey Andreev, the founder of Badoo: another dating app. In its existence, Bumble has grown to maintain roughly 190 monthly active users (MAU). Similar to Tinder in many ways but with one significant difference: the women made the first move. Bumble grew, to the point where by the end of 2017, they were offered a buyout by Tinder’s parent company, Match Group, for US$450 million. They declined. After dating, they have now horizontally expanded to finding platonic friends through Bumble BFF, as well as professional networking through Bumble Bizz. July 2020 marked Bumble’s 100 millionth user and it has continued to expand since with an estimated IPO valuation between US$6 Billion to US$8 Billion.
There’s an interesting question that Y-Combinator asks all applicants, to state what they realise about the market that their competitors just don’t understand. I think this applies perfectly to Bumble, as they realised the toxicity and harassment that can take place through online dating apps. To reduce this, Bumble empowered women to make the first move, something that truly sets them apart from other competitors. I think it is important whenever you are starting a new venture to have a solid answer for this question, whether you are applying to YC or not.. What sets you apart from the rest? What significant thing do you understand about the market that other companies do not understand? Simply, what is your niche?
Does Love Pay?
If bumble is looking to IPO, they must have incredibly strong financials, metrics and future drivers for success. They do - but it isn’t as simple as that. The online dating market continues to grow at rapid speeds, where almost 40% of all relationships form online nowadays. In USA and Canada alone, there are 44 million MAUs with a market cap of US$2 billion (2020). Estimates suggest that the North American market is expanding at 11%, whilst the global market grows at 13%, reaching US$9.9 billion in 2025.
With this growing market, Bumble states that their main drivers to increase revenue and seek growth are the following:
There are an increasing number of single, unmarried people which are opting into online dating
Increasing Bumble’s market share in the online dating market
Increased chances and opportunities of monetizing their freemium model
Expanding into emerging markets or locations where bumble hasn’t gained traction yet
Bumble’s 2019 reported revenue grew to US$488.9 million, 35.8% up from the previous year. However, the company reported a net loss in 2018 as well as 2020 of US$23.7 million and US$84.1 million respectively. Their free cash flow valuations fluctuate in a similar fashion as well, reporting positive values in 2018 and 2019, however a minor dip for 2020.
To IPO or not to IPO
Doordash and Airbnb had fantastic IPOs as they reaped the rewards of a rebounding American market through the pandemic towards the end of 2020. Last week we saw similar news for Max Levchin’s Affirm IPO. From the outset, it seems like investors appreciate generous venture backed IPOs and Bumble fits the bill to a tea. Applying to trade with the ticker BMBL on the Nasdaq, Bumble sees immense potential. I would break down their potential into the following three factors
Low Supply, High Demand
Currently the world needs a winner. The financial markets want to hear good news. IPOs are it. Many denote IPOs as the launch parties for many companies to begin publicly trading and currently, they are being treated like that. There is a low supply of large, growing, venture backed companies and they are being rewarded in the current market.
Tech companies such as Bumble grew during the pandemic in valuation and MAUs. In a technologically driven world, individuals resort to technology for their wants and needs.
Bumble secures a large portion of people’s lives: their love life and relationships. Therefore, in the cybertopia that we live in currently, tech companies such as Bumble look to ride this profitable IPO train for as long as they can.
That’s it. It’s a growing market for online dating!
The Road Ahead in this Long Term Relationship
Like any IPO, this isn’t the end of the company. It is a significant and commendable milestone but what they do after will cement Bumble as a tech giant of the ages. The dating market has low barriers to entry and companies are trying to break into this lucrative market. Bumble faces significant competition from industry incumbents such as Tinder but also faces challenges from new innovative disruptors. Their next challenges to overcome have already been laid out through their KPIs:
Increased Market Share
How to monetize more features
How to Break into untapped markets
Increasing market share is every company’s dream. But to do so, they must establish not only a fantastic product, but need to show the tangible benefits to the customer. Therefore, they have to rely on the freemium model to bring in more users, and then find new ways to convert them to become paid customers. To cross this chasm may arguably be the most difficult task for a freemium modelled company. In a competitive market, the difficulty of this only increases exponentially.
Breaking into Untapped Markets
Bumble, like many tech companies, wants to ride the rewarding wave of tech IPOs and they fit the bill. They are among the younger companies to file for IPO, seeing a 6 year road to IPO, but that doesn’t negate the fact that this seems to be a fantastic opportunity for them. Bumble definitely seems to land itself as one of the hottest IPOs of 2021.
*Please note that any discussion regarding Bumble’s IPOs are my interpretation and understanding of the company. Please do not make any investment decisions based on my analysis and interpretation of Bumble, its market, as well as their future prospects*
Logo Cover Image Belongs to Bumble