Bumble (NASDAQ: BMBL) stock has been a poor performer in recent months. Since I covered BMBL on 12 February – the day after its Initial Public Offering (IPO) – its share price has fallen from around $70 to $47. That represents a decline of more than 30%.
Has this share price weakness created a buying opportunity for me? Let’s take a look at the investment case for this online dating app operator.
Bumble: Q1 results
Bumble’s first-quarter 2021 results, posted on 5 May, showed the company is still growing at a healthy rate. For the quarter, revenue came in at $170.7m, up 43% year-on-year and above the consensus forecast of $164.6m.
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Meanwhile, total paying users increased 30% year-on-year to 2.8m. Total average revenue per paying user (ARPPU) was $19.99, compared to $17.73 in Q1 2020. Encouragingly, Bumble generated net earnings of $323.4m, compared to a net loss of $88.4 in Q1 2020.
On the back of these results, the company raised its full-year guidance. It now expects full-year revenue of between $724m and $734m.
It seems the market wasn’t impressed with these results, as Bumble’s share price fell sharply on the day after they were released. The main reason for the share price fall was that some investors thought the company’s guidance was quite cautious.
Bumble stock: the bull case
Looking beyond the company’s growth, there are a number of things I like about Bumble stock. One is that the company is led by founder Whitney Wolfe Herd, who launched the Bumble app in 2014. Quite often, founder-led companies turn out to be good long-term investments.
Another thing that stands out to me is that there’s been some bullish insider buying recently. Regulatory filings show that on 26 May, Bumble board member Amy Griffin spent approximately $5m on stock. Griffin is the managing partner of G9 Ventures, an early-stage fund that supports small companies. Clearly, she thinks the share price is going higher.
Bumble’s valuation also looks more appealing now. When I covered the stock in February, it was sporting a forward-looking price-to-sales ratio of around 18. Today, it’s price-to-sales ratio is about eight. That seems far more reasonable.
Finally, Bumble’s short interest is relatively low at present. This is reassuring. It tells us that hedge funds aren’t making massive bets against the company.
Risks
I do have some concerns about Bumble stock however. One is in relation to the competition it faces. Currently, there are a number of other dating apps including Tinder, Match, and Hinge. In this industry, barriers to entry are quite low and users can be quite fickle.
Another concern is that, recently, a number of brokers have lowered their price targets for the stock. On 13 May, there were downgrades from JP Morgan ($60 to $55), Jefferies ($82 to $65) and Evercore ISI ($64 to $53). This isn’t what I want to see in a prospective investment.
Bumble stock: my move now
There are definitely things to like about Bumble stock, in my view. However, weighing everything up, I don’t see it as a strong buy right now. All things considered, I think there are better growth stocks I could buy at the moment.
