The advent of social media has changed the way we meet and has brought the dating world directly to our fingertips. We explore how Bumble is monetizing relationships through its mobile apps and navigating its competitive industry.
- A Bumble IPO makes sense because they need cash to scale and grow their company.
- Online dating industry is highly competitive with prices falling and revenue per users trending down.
- Bumble is a top grossing online dating app, with positive revenue growth and great user adoption and penetration performance.
- Bumble is not yet profitable, and their CAC remains high relative to revenue per paying user.
- Bumble is a women lead and women-oriented platform which has proven to be a good differentiation tactic.
- The industry is still in an early or mid adoption period with only 15% of users paying for the service premiums but the trends show more folks using online dating and accepting it as a norm.
- The industry is a third of what it will be by 2030 and with a Gen Z group meeting increasingly through apps, it makes sense to see online dating becoming more predominant year by year.
Online Dating Market, and Growth
According to statista.com, online dating is presumed to reach a $3.2B market volume by the end of 2021. CAGR is expected between 8.7% and 9.3% for the 2021-2024 period which could lead to a projected market volume of $4.2-$5B by 2024-2025, and $10B by 2027-2030 (these estimates are approximations and may differ based on your source by plus or minus $1B).
Around 15% of US adults have paid for an online dating platform as of 2020 and the current trends indicate that people increasingly meet online, and drastically more so than through friends or bars as seen in the graph below. Major market growth drivers are 1. an increasingly single population delaying marriage, and 2. mobile phone usage growth.
Players in the Online Dating Space
Match group is the leader of the pack with a $39.2 billion market cap, controlling well known players like Tinder, Hinge, OkCupid, Meetic, and Plenty of Fish. Other dating apps include Grinder (a non hetero-centric app), and big players in the online dating services, Spark Networks, The Meet Group, and eHarmony. Match’s third quarter review by BoA Global Research showcases better than expected results with Sales of $640 million and an 18% year over year growth. Match’s top app Tinder has recovered well from lockdowns and generated 15% of the group’s revenue in Q3, and other apps such as Hinge saw great success with app downloads increasing 82% year to date.
Historical Revenues and Trends
User penetration will reach 4.9% in 2021 and near 6% in 2024. The average revenue per user is expected to fall however to $8.76 in the long run. Currently, there are 370 million users as of 2021 with a 15.5% year over year growth. While revenues will increase each year steadily, revenue growth will decrease from this year’s 18.9% to 8.3% by 2024. The following graph by statista.com, shows an increasing usership adoption in the medium term.
How is Bumble Different
Bumble is like Tinder in that parties swipe right when they like and left when they dislike someone’s profile. Bumble is different in that the person to send out the first message is the woman, an attempt to reverse the role expectations and make women feel empowered using online dating apps. The app also enables folks to find friends and professional acquaintances. Bumble saw 42 million monthly active users in Q3 2020, 2.4 million paying users year to date and they operate in 150 countries. Bumble operates two apps, Bumble, and Badoo and they are proudly branded as a ‘’Women Founded’’ company.
The App, and the Business Model
Bumble is one of the first to leverage machine-learning capabilities to blur unsolicited lewd images from chat rooms and introduce automated user verification safety features. The company offers a women centered experience, where the interface attempts to uplift women to make decisions with more assurance.
The company points out that with women in mind they are the only dating app that has the potential to seize a larger portion of the single women population which represents 1.1 billion single, and 1.8 billion working women. They estimate this market segment to represent over $30 trillion of purchasing power globally. Men obviously also use the app as paying customers, but Bumble’s attempt to focus on women will be their main engine to influence the online dating industry. According to Sensor Tower, Bumble is the second highest grossing dating app as of now.
Bumble implements a ‘’Freemium’’, which is a free app service consisting of an optional paid subscription that accelerates the algorithm to up rank its paying users and thus find success more rapidly. Revenue is generated through their direct paying user base with options shown directly below in images from the app.
The number of paying customers is greater under the Badoo app platform, Bumble’s second app. Badoo has stayed around 1,300,000 paying users a year while Bumble has increased from half a million to 1,100,000 paying users in three years. The average revenue per user generated from both segments saw an increase from $15.37 in 2018 to $18.48 in 2020, or a 20.23% percentage change increase in revenue per user. This is a strong case for Bumble bulls as statista shows that the average revenue per user for the overall online dating industry is trending downwards since 2017 and could be as low as $8.76 on aggregate by the end of this year.
However, from our calculations looking at costs of revenue, selling and marketing expenses, and knowing that Bumble saw 2.4 million new users in 2020, we are looking at a cost of customer acquisition of $17.61. Compared to an average revenue per user of $18.48, it is not such a nice number after all. This helps us understand why the company is not yet profitable in that they incur losses on operations that go beyond their cost of customer acquisition (added costs like rent, G&A, and product development).
Revenue and Growth Breakdown
We are seeing is a 4.6% growth in revenue since 2018, which is quite small considering the growth we saw above of 20% in terms of revenue per user. Bumble has seen net losses in earnings and earnings margin, though in 2019 it saw positive earnings margins, potentially a sign for more to come. It will be interesting to see more data as the year goes on and the IPO occurs, but it is quite normal for a tech company started in 2014 to still be seeing some red.
What is clear from the numbers here is that the industry itself might not be there for Bumble to capitalize on yet. Match group shows a business with net profits that have generated a lot of attention, but Bumble is a smaller player and still needs time and money to grow. Bumble has been growing and with time could persevere as a top player through its women focused interface.
Some Risk Factors of Investing in Bumble
- Users rarely stick to one dating platform and have the ease of low-cost transfers between competitive products substitutes.
- If costs go up from Apple and Google stores, expenses could rise and hinder earnings prospects.
- If international adoption fails, this could hinder Bumbles prospects to grow at scale.
- If marketing expenses rise Bumble would see a poor return on marketing costs
- While Bumble has entered white labeling and licensing their technology, any problems stemming from a mismanagement of their licenses, could hurt their brand and their revenue streams with such partners.
- Bumble is heavily reliant on prices remaining high until it can bring down its other costs through brand recognition, more acquisitions as well as diversifying its revenue stream through new products and partnerships.
BoA Global Research