Bumble (NASDAQ: BMBL) is one of the most well-known online dating companies in the world. After the firm's most recent earnings release on Aug. 7, its shares lost nearly a third of their value. Year-to-date, shares are down 60%.

It is now at the lowest forward price-to-earnings multiple in its history, at 5.4x. This is also lower than 90% of firms in the U.S. communication services sector. So, it's fair to wonder whether shares have been beaten down enough and exhibit considerable upside or if the company’s outlook is too bleak for optimism.

We’ll analyze this by first looking at the firm’s operations and then reviewing its earnings release. A comparison to the firm’s leading competitor, Match Group (NASDAQ: MTCH), is also warranted. We'll also examine the latest Wall Street analyst price target changes and look at key considerations for dating app investments.

Bumble’s “Freemium” Business Model

Bumble operates five dating and social interaction apps. Its revenue is divided between the Bumble App, the Badoo App, and others.

Bumble primarily has users in the United States, United Kingdom, Australia, and Canada. The Bumble app was one of the first in the industry marketed largely towards women, focusing on improving their experience in online dating. It made up 80% of total revenues in 2023. The Badoo App has users based mostly in Europe and Latin America and made up 20% of revenues.

The company’s applications utilize the “freemium” business model, where most users engage without paying a subscription. The small percentage of users who do subscribe to access premium features drives almost all of the firm’s revenue.

Similar to many mobile application companies, the firm’s key operating metrics revolve around increasing the number of paying users and increasing the average revenue per paying user (ARRPU).

Lowered Revenue Growth Guidance Hits Bumble Stock Hard

Bumble beat analysts’ estimates on earnings per share, which came in at $0.22, 57% above expectations. Revenue came in 1.5% below expectations at $269 million.

However, the reason for the massive drop in the stock price was the outrageous cut in the firm’s revenue guidance for the remainder of the year. It now expects revenue growth at a midpoint of just 1.5%. Previously, that number sat at 9.5%.

The company increased its total number of paying users by 14% from the previous year and 3% from the previous quarter, but ARRPU is moving in the opposite direction. This figure decreased by 7% from the previous year and 2% from the previous quarter.

In the quarter, Bumble launched a new feature called “Opening Move," which allows women to send out pre-written first messages to their matches, making starting a conversation easier. CEO Lidiane Jones says this and other features are increasing engagement on the app. She pointed toward an increased number of high-quality profiles and more matches.

However, without metrics so far to support this and the revenue growth guidance drop, it’s hard to be convinced that the feature will change Bumble’s fortunes in the short term.

Bumble Stock in Comparison to Match Group

The story of Match Group, which owns Tinder and Hinge, is similar to Bumble's in some ways. While Match Group saw its total number of paying users decline by 5% from the previous year, its revenue per payer increased by 9%.

Match Group also lowered its full-year revenue growth guidance, however much less significantly, down to 5%. Overall, total revenue increased similarly to Bumble at 4%. However, a notable advantage for Match Group is that it has a fast-growing division: its Hinge app. Hinge revenues grew by 48% from the prior year.

Key Considerations for Investing in Bumble

Among 11 analysts who updated their Bumble price targets, the average now implies an upside of 13%. This compares to a 20% upside for Match Group, with more analysts weighing in.

Overall, dating apps have seen an industry-wide decline in downloads since 2020, and growth doesn’t seem to have much room to recover when the apps' youngest users are reportedly feeling intense fatigue. Unless one of these companies or a new company comes out with a product that provides a drastically different user experience, it’s hard to justify an investment based on the limited upside.

Investors should keep their eyes peeled for products that can offer something different to the dating space, possibly prioritizing meeting people in person initially. The anecdotal growth in “run clubs” to pursue dating shows the desire for this. However, how something like this could be monetized is yet to be seen.

Source MarketBeat