Bumble Inc. (NASDAQ:BMBL) Q1 2023 Earnings Call Transcript

Bumble Inc. (NASDAQ:BMBL) Q1 2023 Earnings Call Transcript May 4, 2023

Operator: Thank you for standing by. My name is Sydney and I will be your conference operator today. At this time, I would like to welcome everyone to the Bumble Q1 2023 earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I now pass it over to Cherryl Valenzuela.

Cherryl Valenzuela: Thank you, operator and thank you all for joining us to discuss Bumble first quarter 2023 financial results. With me today are Whitney Herd, Founder and CEO; Tariq Shaukat, President; and Anu Subramanian, CFO of Bumble. Before we begin, I’d like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our earnings press release and filings with the SEC, including our annual report on Form 10-K for the year ended December 31st, 2021, and our subsequent periodic filings.

During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in today’s earnings press release which is available on the Investor Relations section of our website at ir.bumble.com. And with that, I’ll turn it over to Whitney.

Whitney Herd: Thank you, Cherryl and good afternoon everyone. Thanks for joining. We are off to a great start to the year, delivering strong revenue growth and paying user additions in Q1. Total Bumble Inc. revenue of $243 million, grew 16% year-over-year and was at the high end of our guidance range. Revenue growth was fueled by both payers and ARPPU. Total paying users increased 15% to reach 3.5 million and ARPPU grew to $22.83. We achieved strong profitability with adjusted EBITDA of $59 million, representing a 24% margin, which exceeded our expectations. Our results demonstrate that online dating remains a healthy, attractive and high growth markets driven by powerful secular trends on an increasingly global scale. According to a Stanford study, which was updated recently, online dating has surpassed more traditional mechanisms to become the top way for heterosexual adults in the US to meet their romantic partners.

This trend continues to grow in the US as well as around the world, driven by advances in technology, digital-first demographics, and shifting cultural norms. We at Bumble see this trend every day and we feel very fortunate to be a rare technology business that brings people together in real life. Earlier this week, the Surgeon General issued an advisory calling attention to the devastating impact of the epidemic of loneliness isolation, and lack of connection in the United States. In the face of this public health crisis, our work is more critical and more important than ever before. Just the other day, the team and I had the chance to dig through overflowing boxes of engagement, wedding, and baby shower invitations that have been sent by successful Bumble users to our headquarters in Austin.

It is so rewarding to see the impact on the community that our products, team, and our mission brings to life. This also speaks to the ongoing market momentum we see. Bumble, Badoo, and Fruitz remain among the leading apps in their core markets. This is reflected in the strong underlying demand we have seen in 2023 to-date, with encouraging registration and download trends in most of our global markets, as well as the continued success of our brand, product, and monetization initiatives. Our team is delivering these results with a strong focus on operational efficiency. Over the last several years, we have been committed to expanding margins and have placed a high emphasis on managing our OpEx growth. We have demonstrated that our playbook focusing on durable growth delivers strong global expansion and high quality user experiences.

We have maintained this approach even in the face of elevated competitive marketing spend. While operating efficiently, we remain committed to investing for the future. There’s a lot of talk about AI these days, and our teams are active in a number of areas. For us, this is not a new topic or focus. For years, we have been leveraging AI in our apps across safety, content moderation, our recommendations engine, and our personalization and monetization efforts. These results have driven real impact across the user experience. For example, the new AI first algorithm that we mentioned last quarter increases the probability of a woman saying yes to a profile by 5x. This is just the tip of the iceberg in using AI to improve our curation and the quality of the connections that we can make.

Our product, engineering, and marketing teams are baking AI into their key initiatives instead of it being a sideshow. For example, there are active efforts looking at how we can use the available toolkits to improve our marketing and software development effectiveness. We’re also in the early stages of exploring AI assistance to help you improve your bio, get first date recommendations, or select the best photos to showcase on your profile, among many other optimization opportunities. We look forward to providing updates in the future. Now, let me turn to updates for each of our apps. First, Bumble App. In Q1, Bumble App revenue reached 194 million with 98,000 sequential net adds and paying users. These results are a reflection of strong execution against the strategic priorities that I outlined in our last earnings call, namely international expansion, product innovation, and safety by design, as well as robust top of funnel demand.

Photo by Good Faces Agency on Unsplash

Starting with international expansion, we continued our market momentum with download share gains across both core and new markets across all of our priority regions, including Western Europe, Latin America, and India. This is in spite of very elevated levels of marketing spend that we’re seeing from our global competitors. We are very out of the results our team has driven in this environment, while maintaining the spend and ROI discipline that we are known for. Looking at downloads for the full quarter in Q1, Bumble was the most downloaded dating app in the UK and Canada. In a virtual tie in Germany, and a strong second place position in the US, France, and Benelux. We continue to maintain a strong traction in India and our key markets in Latin America and Southeast Asia.

As a reminder, our marketing playbook is focused on building durable, organic market positions on the strong foundation of our authentic women-led safety-first brand. Our net brand favorability with women in the US, UK, and France, especially for the Critical Gen Z segment is the highest of all major dating apps tracked by Morning Consult, the independent brand research group. This results in strong download share that translates into retained active users, high levels of engagement, customer success in word-of-mouth, and robust revenue growth. We are also on track with Bumble’s exciting product roadmap this year. While we continue to focus on refinements of our existing products and further optimizations across pricing, targeting, and user experience, delivering new product innovation is critical to our brand strength and long-term growth.

Here’s a recap of some recent highlights. In Q1, we completed the full rollout of complements in all markets. We are seeing revenue contribution continuing to ramp and we’re now focused on accelerating adoption of this feature, as well as driving incremental paying user growth. We are live in several key markets with our best fees offering. As I mentioned earlier, this offering uses our new AI algorithm to provide a higher level of curation for our members. Available today in a number of markets in Western Europe, we’re excited by the early traction that we’re seeing in terms of high levels of user engagement and matching. We are testing both subscription and consumable based monetization approaches for this and expect to accelerate rollout over the next several months.

We have also seen positive results from enhancements that we’ve made to our Speed Dating feature. This enables members to meet and chat in an anonymous and more playful, and low stakes format first before they’re prompted to match. We’ve been able to increase the frequency of these events without losses in participation, while simultaneously exploring monetization through both sponsorship and ticketed events. As we always do, we are actively experimenting with a number of new user engagement monetization initiatives. These are generally small scale experiments that let us learn how to improve the health of our business. A good example of this is a new product we’re testing, which is a potential subscription tier priced below Bumble Boost and aimed at Gen Z users.

The emphasis is on offering new services to help our users better express themselves, whether that be through additional compatibility assessments, stickers, virtual gifts, and photo effects. We expect to roll this out later this year and into 2024 and as always, we will do all of this with a safety by design approach. We will continue to take a comprehensive approach across product, policy, partnerships, and people to ensure that our users, especially women, continue to feel safe and empowered on our apps. Now, turning to Badoo. Badoo and other revenue totaled $49 million, down 13% year-over-year. We remain confident in Badoo as it remains the leader in key markets and a top three apps in many countries across Europe and Latin America. Badoo continues to be one of the top rated scale dating apps on the App Store and on the Google Play Store.

While we still have work to do to further stabilize Badoo and return it to growth, we are encouraged to see registration and reengaged users growing in several key markets. Our focus remains on shoring up retention and increasing engagement by focusing on quick, authentic, and feel good connections, which are the hallmark features of Badoo and what its loyal users love most about the platform. We are currently testing a new Badoo experience built around different discovery mechanics, which significantly speeds up the time it takes to get a quality connection. Finally, on Fruitz, the team continues to execute well on their product roadmap, demonstrating strong growth in its core French speaking markets. We believe the power of this product with Gen Z remains a unique differentiator and we’re also incorporating lessons learned from it in Bumble and Badoo.

For example, we’ve leveraged some of Fruitz’s Gen Z pricing and targeting strategies in Bumble. The Fruitz product roadmap is very exciting, drawing on experiences that are gaining traction in social media apps. And we believe these innovations will help it drive even greater market share in its home markets. In Q2 and Q3, Fruitz will also be taking its first steps into global expansion. Again, emphasizing the organic growth model that leads to a durable market position and favorable economics. In closing, our mission today remains the same as it was when I founded Bubble app in 2014, to make relationships better, more equitable, and healthier for women in an effort to make relationships better for everyone. I firmly believe that we are making progress towards that mission every day on a global scale.

The demand for love and connection is stronger now than ever before and we believe our products deliver for this demand in a unique, safe, kind, and differentiated way with strong customer loyalty. I am fully committed to this vision over the long-term. I have never been more excited about the future of our business. Deep gratitude and thanks to team Bumble Inc. as always for your dedication and hard work and to our customers, partners, and investors for your continued trust and support. With that, I will now turn it over to Anu for a discussion on our financial results and outlook.

Anuradha Subramanian: Thank you, Whitney and good afternoon everyone. I’ll begin with a discussion of our first quarter results before turning to our outlook for Q2 and full year 2023. Unless stated otherwise, all comparisons are on a year-over-year basis. Total Bumble Inc. revenue in Q1 was $243 million, up 16%, and at the high end of our guidance. FX was the $7 million headwind for the quarter and combined with headwinds from the war in Ukraine, impacted our growth rate negatively by five percentage points. Total Bumble Inc. revenue was driven by paying user growth 15%, primarily from Bumble App and ARPPU growth of 1%. Revenue from Bumble App was above the high end of our guidance range at $194 million, up 26%. FX headwinds negatively impacted growth by three percentage points.

Bumble App revenue growth was driven by a 31% increase in paying users to $2.3 million. On a sequential basis, we added 98,000 paying users resulting from strong growth in monthly active users, as well as increases in payer penetration. Bumble ARPPU was $27.93, down 4% year-over-year. This was primarily driven by FX headwinds and impact from country mix. Now, moving on to Badoo App and Other. Badoo App and Other revenue was $49 million, down 13%. In aggregate, FX headwinds and the Ukraine conflict impacted our growth rate negatively by nine percentage points. Badoo App and Other paying users, excluding Fruitz, declined 7% to 1.1 million. Excluding the impact of our exit from Russia and Belarus, Badoo paying users would have grown over 2%. As Whitney mentioned, we believe we are making progress in stabilizing Badoo.

On a sequential basis, paying users dropped 47,000 in Q1. Badoo App and Other ARPPU, excluding Fruitz, declined 7% to $12.47, primarily due to FX. Turning now to expenses. We are more focused than ever on managing the business profitably with a high bar for incremental spend and headcount. We are pleased with the profits we have made in the first quarter towards our margin goals for the year, while also achieving our topline objectives. We continue to believe we have room for further leverage in our business and remain committed to expanding margins in the long-term. Total GAAP operating cost and expenses were $234 million for the quarter. On a non GAAP basis, excluding stock-based compensation and other non-cash or one-time items, our total non-GAAP operating expenses were $184 million, up 15%.

Cost of revenue was $69 million and grew 27%. The increase was primarily driven by higher App Store fees as revenues have grown, as well as shift away from third-party billing to Google Play on Android. As a percentage of revenue, cost of revenue was 29% versus 26% in the year ago period. Sales and marketing expenses grew 3% to $60 million. This represents 25% of revenue versus 28% in the year ago period as we focused on efficiency in marketing spend during the quarter and state discipline on ROI thresholds across all campaigns. G&A expenses were $32 million or 13% of revenue compared to $30 million or 14% of revenue last year. Product of development expenses were $23 million or 9% of revenue versus $18 million or 9% in the year ago period.

Q1 GAAP net loss was $2 million compared to net income of $24 million in the year ago period. Q1 adjusted EBITDA was $59 million, up 19%, and represented a 24% adjusted EBITDA margin. We ended the quarter with a cash and cash equivalent balance of approximately $389 million, down from Q4, primarily due to timing of receipts. Now, moving on to our financial outlook for Q2 and full year 2023. For Q2, we expect the following. Total revenue between $254 million and $258 million, representing a growth rate of 17% year-over-year at the midpoint of our range. We expect Bumble App revenue to be between $205 million and $208 million, presenting a growth rate of 23% year-over-year at the midpoint. Our Bumble App revenue guidance includes expectations for sequential net adds of approximately $120,000 to $130,000 in Q2.

We expect Badoo sequential net adds to be flat to slightly positive in Q2. We estimate adjusted EBITDA will be between $62 million and $64 million, representing 25% margin at the midpoint of the range. For full year 2023, our view on full year expectations has not changed since our last earnings call. We maintain our estimate for total Bumble Inc. revenue to grow between 16% to 19% year-over-year. We are pleased with the performance of Bumble App so far, and we maintain our expectations for revenue growth rate of between 22% to 25%. With regard to full year adjusted EBITDA, we expect at least hundred basis points of year-over-year margin expansion. Today, we announced that our Board of Directors has authorized a share repurchase program for up to $150 million of our outstanding Class A common stock.

We have a strong liquidity position with low net leverage and continue to generate free cash flow. Our priorities from a capital allocation perspective remain to invest in growing the business organically as well as in pursuing M&A opportunistically. Beyond these investment opportunities, the share buyback program provides its flexibility and allows us to return capital back to shareholders. To summarize, we achieved strong topline growth this past quarter while staying disciplined with our expenses. We believe we are in a good position to continue gaining market share amidst the dynamic and competitive environment. And we are excited about our product road map for the year. We plan to carry forward this business momentum we have built in the first quarter through the rest of the year.

Thank you. And with that operator, we can open it up for Q&A.

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Q&A Session

Operator: Thank you. Our first question comes from Alexandra Steiger.

Alexandra Steiger: Thank you for taking my questions. Could you maybe dive a little deeper into the progress you’re making in the various international markets developed versus emerging given the elevated competitive marketing spending you mentioned? And how should we think about the pace and cadence of new market launches versus prioritizing as existing regions for the remainder of the year? And then maybe second, can you just remind us of your philosophy around pricing increases our optimizations. Is there a room to optimize pricing in this type of environment? Thank you so much.

Tariq Shaukat: Hey, Alex. It’s Tariq. Thanks so much for the question and I’ll try and tackle both of those. I think as it relates to international expansion, we remain very pleased with the progress that we’re making in our international markets. I think it continues, excuse me, to be a source of strength for the business. And we are seeing as Whitney mentioned, we’re seeing continued traction from a download share standpoint as well as just continued absolute levels of growth really throughout Western Europe, throughout the markets we’ve launched in Latin America, in India, and in Southeast Asia. We are seeing that our focus on what we internally refer to as durable growth, meaning this this notion of let’s build an organic base in these countries, let’s make sure that we do that in a way that generates the word-of-mouth and virality that we need in these countries so that you build resilience into the and robustness into the growth model, that that model really does work and continues to work really well.

It has made us we think quite resilient in the face of very elevated levels of marketing spend that a number of our competitors are putting into market. And what we’ve seen is even when you do see those elevated levels of spend, it’s not really diminishing the trajectory that Bumble has in those markets. So, we feel very good about our position. And again, our focus is very much on getting the downloads and converting those users into active users who are willing to engage at a high quality level and are eventually willing to monetize. So, we’re very pleased with that. In terms of the cadence, we are pleased with the progress we’ve made in Western Europe. There’s a couple of more countries in Western Europe where we’ve got some more work to do.

We launched Spain later in the year last year. We’re continuing to focus there. Italy, The Nordics in some parts of Central Europe are a real focus this year, but I do want to reiterate that the job is only just getting started when we launch into a market, and it really is about building depth in that market. That’s where that’s the million dollar if you will. And so we’re really focusing on that. You’ll see us continue the focus we have on parts of Latin America and healthy Asia as well, but really the primary emphasis is Western Europe. In terms of pricing, we — I think we mentioned this in the last call, but 1 of the real core strengths that we probably haven’t said all that much about is the data analytic foundation that we’ve got inside of the company.

We’ve got just an amazing platform that we’ve been overhauling over the last couple of years. That allows us to do a level of personalization, a level of personalized data analytics, and as a result, price optimization at a very, very fine level. This is something that has really fueled the company historically, and it’s something that we are constantly working on, we think that it’s a large part of the story to-date that you’ve seen in Bumble and Badoo, and it will continue to be a large part of the story moving forward as well.

Alexandra Steiger: Great. Thank you.

Tariq Shaukat: Thank you.

Operator: Your next question comes from Cory Carpenter.

Cory Carpenter: Thanks for the questions. On the Bumble App 2023 outlook, Anu, could you just talk about your latest thinking around expected contribution of net ads versus ARPU. I think you previously talked about a 450,000 to 500,000 range as well as the cadence of that through the year. And then non-financial related, one of your competitors is raising prices, and they’re losing some subscribers as a result. Curious if you view this as an opportunity to take share, or know, maybe if there is evidence already that perhaps you are some of those users are moving over to Bumble? Thank you.

Anuradha Subramanian: Sure. Hey, Cory. Thanks for the question. So, I think as I said in my prepared remarks, we are for Bumble App maintaining our full year revenue cadence of 22% to 25%. That also translates to our net adds expectations, so we still expect the 450,000 to 500,000 net adds for the full year that we had guided to. For Q1, we had said we would do between 90,000 to 95,000. We’re very happy that we came in just a little bit higher that bad at 98,000. We are expecting for Q2, we will be between 120,000 to 130,000. And then Q3, we expect we will be above that. And then from a seasonal perspective, Q4. As you all know we will be slightly lower than where we end up in Q3. So, that’s the cadence of what we are expecting.

Again, this is very similar to what we had talked about in our previous earnings calls, and nothing really has changed. I think we’ve been very happy with how the business was performed and excited about the product roadmap that that Whitney talked about earlier. So, we’ll obviously share more. In terms of ARPPU, again, I think for the full year, we are expecting that ARPPU will come in maybe slightly lower than the 2022 average ARPPU that you saw. But as we always say, on a practical basis, our goal is always to make sure that we are maximizing payers and our people for each product that we put out based on what is relevant and what’s important for that product experience to look like. So, obviously, there are always puts and takes between payers and ARPPU to some extent.

But largely, I think, what I just talked about should very much hold true. And then maybe I just also mentioned for Badoo, what — from a net add perspective, we had guided to about negative 50,000 for Q1, we came in at negative 47,000. We feel pretty good that we will be in sort of stable to positive territory in terms of net adds for Badoo. So, we are sort of pleased with how the business there has been performing. We definitely have work to do there. But we definitely feel like it’s on the right path. So, yes, that’s the update on your first question. I’ll pass it over to Tariq to talk about the–

Tariq Shaukat: Sure. In terms of some of the competitor price increases, I think what we are — what we fundamentally believe is people decide whether to pay on Bumble based on how happy they are with the Bumble experience. Certainly as it becomes potentially less attractive from a pricing standpoint to spend on a competitor, I suppose that could be positive for us — still too early to tell. That’s the case, what we do feel very good about is that, as Whitney mentioned, the net favorability, which is how many people are favor — have a favorable impression of Bumble versus have an unfavorable impression of Bumble is the highest let’s say, in the US of any of the major dating apps, track by Morning Consult. So, we think we’re set up well to be — to continue to be a preferred platform for people who want to participate in dating apps and who want to pay.

And in fact, if you looked at Q1, as our net adds numbers suggest, our new subscriptions and our payer penetration rates remain healthy and we’re actually increasing towards the end of Q1 or throughout Q1 and so we do think that there are some nice tailwinds in the business.

Operator: Your next question comes from Shweta Khajuria.

Shweta Khajuria: Thank you for taking my questions. Could you please comment on the demand trends that you’re seeing? Your competitor recently mentioned there’s some headwind on their à la carte because of macro headwinds. What are you seeing and specifically in North America versus international markets? And then the second question is what — when you talk about greater focus on operating efficiencies, could you, Anu, please talk about what exactly you are focused on, what is — what drove the EBITDA upside and where it could be potential efficiency gains to be had when we think about EBITDA and margins? Thanks a lot.

Tariq Shaukat: Sure. I’ll start with the demand question and turn it over to Anu. So, we are really seeing quite nice top of funnel demand in general, I think, across Bumble and Badoo, towards the end of the quarter again, Badoo was seeing a very nice level of registrations, and that continued into April, and Bumble has been quite strong from a registration standpoint. As I just mentioned, as you look at paying trends, what we basically see is that new subscriptions are continuing to be strong — payer penetration continues to be strong. I’ll speak about Bumble App here for a second and actually modestly improved throughout Q1. So, I think that is a is a good sign. Our renewal rates for ongoing subscribers, meaning people who have been subscribers for multiple months, remains healthy and also saw modest improvements throughout Q1 and in April.

So, generally speaking, seeing pretty healthy demand trends. The exception, I would say, is if you look at this at a segmented level — and by the way, to your question, that was — those were sort of global trends. I think you saw that in the US, you also saw it in our other major markets. As you look at the more segment level, we are still seeing pockets that are economically challenged, and that — particularly if you looked at our Gen Z segment, you’d see some level of economic challenge there. So, that is still leading to some challenges on that first-time renewal, meaning, there are some people who do want to be a subscriber, they’ll use it for the month, and then they’ll choose not to renew because they’re economically stretched. That is something we’re keeping an eye on and continuing to work on with some of the value messaging and things like that.

But, again, overall, we’re seeing quite a nice demand picture. On the consumable side, we’re also seeing very strong demand there. Actually, our larger consumable packs are actually doing probably the best of all the consumables that we offer. So, I think we’re seeing quite a different trend there than what others may be seeing.