Stay Away from Bumble Stock Until Well After the Lock-Up Period

Stocks to sell

Not much changed in the last few months preceding Bumble’s (NASDAQ:BMBL) initial public offering. Last September, Bloomberg News reported a valuation of $6 billion to $8 billion. So, after Bumble stock started trading in early February, valuations have been in line with insider expectations.

Source: XanderSt /

What is the play with trading Bumble after its IPO?

The stock could move erratically until the insider lockup expiry. Snowflake (NYSE:SNOW), for example, spent months trading in range after its IPO then spiked on a massive end-of-year rally. Yet the SNOW stock is losing steam as investors move to the next momentum trade.

That could very well be the case with Bumble stock as investors across the board take a wait-and-see attitude. If that’s the case, this isn’t a great time to jump on board.

Bumble Stock Offers No Moat

Bumble is similar to Match Group (NASDAQ:MTCH). The company’s online dating app is the core business. Bumble has almost no moat compared to Match Group products like Hinge, OK Cupid, Plenty of Fish, or Match Group’s Tinder.

There is a novel way the app differentiates itself: On Bumble, only females make the first move. She must send the first message. If she does not do so within 24 hours after pairing, the user loses the match. To my mind, this is not a competitive advantage, which is a problem.

Bumble’s lack of competitive advantage did not hurt its fourth-quarter and full-year 2020 results.

It posted Q4 revenue rising 31% to $165.6 million. Bumble App accounted for $105.8 million of that revenue and is up 47% from last year.

“Looking ahead, we remain focused on driving scale, investing in our users, and expanding internationally” CEO and founder Whitney Wolfe Herd said. “Our IPO was a pivotal milestone, but we are just getting started and are excited for the next chapter of our journey.”

Near-Term Growth

The injection of money from the IPO will give Bumble the resources it needs to invest more into the business. For example, the Wolfe Herd mentioned international expansion. As Bumble widens its total addressable market, its market share will grow. This will accelerate revenue and profit margins.

Fitbit, which Alphabet (NASDAQ:GOOG) bought, and GoPro (NASDAQ:GPRO) are examples of firms that sought growth through international expansion. It did not work out for Fitbit, as costs grew faster than sales.

Bumble does not face the same operational risks as Fitbit. The dating app maker is software-based.

Since it has no physical hardware costs like Fitbit had, the costs of failure are low. An unfavorable valuation in Bumble stock is the only risk for investors. But it is the one that should make them stand clear as Bumble can crash.

The Bottom Line

Bumble lost $110.2 million last year. Its adjusted EBITDA was $143.1 million.

“Looking ahead, we believe we are well-positioned to drive growth in users and capitalize on our significant market opportunity,” said Chief Financial Officer Anu Subramanian.

My concern is that the pandemic accelerated user growth, which will fall off once everyone returns to bars and restaurants. The process may be big trouble for dating apps.

Analysts are divided on Bumble’s outlook. Half rate the stock as a “buy” while the other half rate it a “hold.” Investors seeking a better entry price should wait until the insider lock-up expires. By then, the selling pressure that follows will abate.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.