Citi starts Bumble at Buy; Says they have 'the right pieces in place to see improvements'

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By Michael Elkins

Citi initiated coverage of Bumble Inc (NASDAQ:BMBL) with a Buy rating and $24.00 price target as the dating app continues to take share and new product features begin to take hold.

Bumble currently has one of the best growth rates within Citi’s internet coverage, with expected modest EBITDA margin expansion as well. Most importantly, the core Bumble app has seen continued share gain within the online dating world, and recent product launches are leading to better conversion of paid users as well.

Analysts wrote in a note concerning Bumble, “Its brand message around “women first” seems to be resonating well with younger audiences and Bumble is pushing further there with greater focus on the college audience. It is also earlier in its international runway with material room for growth. Bumble’s second largest app, Badoo, is seeing greater challenges, with more exposure to the war in Russia and a more pressured lower-income demographic. Although it will be a challenge, we expect improvement over time.”

The core Bumble app remains well behind industry leader Tinder. However, the app has continued to gain ground, and has seen improvements in conversion. In Citi's view, with overall industry growth reaching some level of maturity, share shifts will prove to be key growth drivers.

The analysts continued in the note, writing “Bumble is seeing a balance of positive and negative factors in the near term, but we see the hurdles to getting back to stronger growth rates amid continued share gain in dating apps as manageable, leading to stronger results in 2023. While the macro has been more of a factor for Badoo than Bumble, it has seen its subscription renewal rate stabilize (at a lower level) since 2H22. Meanwhile, Bumble has gotten through its product delay headwind after pushing back a number of key product initiatives during 3Q22 that were expected to be larger contributors in 2H, but are starting to demonstrate early success.”

They also believe Bumble is earlier in its international trajectory than rivals like Match Group (NASDAQ:MTCH), which should lead international to be a bit more of a growth vector for Bumble. Overall, Citi believes the dating ecosystem is now at a point where user conversion to a paying user is more critical than just driving new user growth, putting additional pressure on product development and paywall-type products that may entice multiple types of users. Bumble has made progress expanding its focus to include social connections, but it will take time to be a contributor to fundamentals.

“We think Bumble has the right pieces in place to see improvements,” wrote the analysts.

Shares of BMBL are up 1.91% in mid-day trading on Friday.