US stock Bumble (NASDAQ: BMBL) is getting quite a bit of attention after its initial public offering (IPO) yesterday. Here in the UK, BMBL is one of the most viewed shares on Hargreaves Lansdown’s platform today.
Should I consider Bumble stock for my own portfolio? Let’s take a look at the investment case.
Bumble Inc: business description
Bumble Inc is the parent company of Bumble and Badoo – two of the world’s most popular dating apps. Worldwide, the apps have over 40m users combined. They are among the top-five-grossing iOS lifestyle apps in 30 and 89 countries respectively, according to the parent company.
The group is led by CEO Whitney Wolfe Herd (a co-founder of Tinder), who launched the Bumble app in 2014.
Strong growth
There are certainly things I like about Bumble. For starters, it has a great dating product. My brother actually met his wife on the Bumble app!
Secondly, the company is growing at a rapid rate. According to its S-1 filing, 2019 total revenues grew 36% to $488.9m. Meanwhile, for the first nine months of 2020, revenue came in at $416.6m, up nearly 15% year-on-year. That’s not bad given we were in the middle of a global pandemic.
To put those figures in perspective, rival Match Group (which owns Tinder and Hinge) generated revenue growth of 19% in 2019, and 16% growth in the first nine months of 2020. Match’s full-year revenue for 2020 was up 17% to $2.4bn.
Looking ahead, I expect the popularity of dating apps to increase as the world becomes more digital. Increased adoption should benefit Bumble.
BMBL: risks
There are a few risks to the investment case however. The first thing I’m concerned about is there’s a lot of hype around Bumble stock after its IPO. This has resulted in a huge jump in the share price. It debuted at $43 yesterday. However, it ended the day at $70 – 63% higher.
This share price rise gives the company a market-cap of $13bn, which translates to a price-to-sales (P/S) ratio of about 18, using this year’s consensus revenue forecast of $723m. That’s quite a high valuation, in my view. Rival Match Group sports a forward-looking P/S ratio of around 16.
After the recent share price rise, BMBL stock could be volatile. It’s worth noting that CNBC’s Jim Cramer said yesterday he believes Match is the better stock of the two for more cautious investors (like me).
Secondly, the company doesn’t appear to be consistently profitable. In the first nine months of 2020, Bumble generated a loss of around $117m, compared to a gain of $69m in the prior-year period. This lack of consistency adds risk.
Finally, I also have some concerns about the nature of the industry. Users of dating apps can be quite fickle in that they often pile into new apps. Are Bumble’s superior enough to give the company an enduring competitive advantage? I’m not sure.
Bumble stock: my approach
Given the risks to the investment case, I’m not going to buy Bumble stock for my portfolio right now. The company does have growth potential. But the lack of profitability, and the share price jump concern me.
All things considered, I think there are other US growth stocks I could buy that are a better fit for my portfolio.