Bumble shares open at $76, $33 above the IPO price. Is it a good time to buy shares in this dating app?
Shares in the dating app Bumble (BMBL) have risen 76% on their stock market entry, resulting in a valuation of £10 billion. Massive first-day trading gains are to cause a rumble with venture capitalists who argue the initial offering was under priced.
The IPO was led by Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and JPMorgan Chase & Co. Bumble’s shares began trading on Thursday on the Nasdaq Global Select Market under the symbol BMBL.
The Texas based company was founded in 2014 by Whitney Wolf Herd, a cofounder of the rival dating app, TInder. She sued Tinder after an alleged sexual harassment case and left the company promptly after in the same year. She received a $1 million settlement from Tinder’s parent company Match Group.
Later, in 2018, Match had filed a lawsuit against Bumble for intellectual property infringement which sparked Bumble to take out a counter-lawsuit accusing Match of fraud and theft of trade secrets. Both lawsuits were subsequently dropped.
Bumble is different to other dating apps centuring on women to make the first move. Though bumble has subsequently added features to meet new friends (Bumble BFF) and business contacts (Bumble Biz). The company has around 54 million monthly users, showing clear competition to Tinder which has 100 million users per month.
With the pandemic going on, the online dating market has boomed as people seek alternatives to in-person dating. However, Bumble published a net loss of $84 million between February and September last year. This poses a huge question to the world of online dating, will people continue to use these services post-pandemic?
Recently, there have been several companies that have surged after their debut on the stock market. Food-delivery company DoorDash rose 86% and Airbnb more than doubled after opening on stock markets. 2020 saw first-day rallies triple the average over the past 40 years.
Before you invest in Bumble, you will need to open an account with a broker to manage your investments.
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Should I buy?
With Bumble’s IPO price at $43 there is plenty of room for growth. Sales are predicted to expand by 20% to 2023 with a 12-13x forward sales multiple that beats TInder. But it is uncertain whether there will be as much public interest in the premium service when in-person dating picks up again post-pandemic. Market research indicates that people will adopt the new normal of online dating making it likely that most (although not all) of the business these dating apps have acquired over the pandemic will continue.
Bumble offers a competitive advantage over other dating apps with their women first approach.
“They made the successful bet that where women are, the men will follow. And women will go where they feel comfortable and empowered,”– Jeremy Abelson, founder of Irving Investors, who supported the IPO.
Bumble also offers services beyond dating. Bumble BFF, the friend-making part of the app, only has 9% of Bumbles total users. Competitor Ablo, owned by the Match Group has seen a continued interest in finding friends virtually so there is definitely potential to grow.
It is often thought that investing in IPOs is risky. Lyft shares become public a few years back yet still haven’t reached the price of their IPO two years later. It is also important to consider that IPO investing favours institutional investors as these organizations are able to acquire shares before the retail market opens, giving them a distinct advantage to retail investors.
Furthermore, the digital dating sector has high competition and with Match Group forecasting a revenue below what analysts expected, the potential for growth from the new kid on the block is somewhat limited.
Normally, we would look at the stocks recent performance to judge whether it is a good stock to buy, but with Bumble trading for less than 24 hours, it’s best not to rely on this indicator!
There are currently no published analyst ratings for Bumble so it could be a big risk to buy now.