Bumble Inc. (NASDAQ:BMBL) Q3 2023 Earnings Call Transcript

Bumble Inc. (NASDAQ:BMBL) Q3 2023 Earnings Call Transcript November 7, 2023

Bumble Inc. beats earnings expectations. Reported EPS is $0.12, expectations were $0.07.

Operator: Thank you for joining. My name is Danica. I will be your conference operator today. At this time, I would like to welcome everyone to the Bumble Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the call over to Cherryl Valenzuela, VP of Investor Relations. Please go ahead.

Cherryl Valenzuela : [Technical Difficulty] quarter financial results. With me today are Whitney Wolfe Herd, Founder and CEO; 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 statement 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 31, 2022, 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 Wolfe Herd : Thank you, Cherryl. Good afternoon, everyone. Thanks for joining our call today. Before we dive into our third quarter results, I want to spend a moment on the exciting announcement we made yesterday regarding the future of Bumble Inc.’s leadership. Lidiane Jones, who currently serves as Chief Executive Officer at Slack and has more than 2 decades of experience as a product, technology and business leader, will join Bumble Inc. as our next CEO effective January 2, 2024. At that time, I will transition to the role of Executive Chair. This announcement is a monumental moment in Bumble Inc.’s evolution and is the result of a thoughtful and deliberate succession planning process. The Board and I have thought hard about what type of leader could ultimately step into the CEO role as a successor to me and help taking — help continue to take Bumble Inc.

to even greater heights. We were thrilled to find someone with Lidiane’s background, passion and values to propel Bumble forward. Having her leading this next chapter of Bumble Inc. is a major win for our company, members, team and shareholders. For me, the last decade taking Bumble from just an idea to a publicly traded company has been incredibly rewarding and fulfilling. I founded this company to empower women to make the first move. Now after more than 1 billion first moves and countless success stories, I am ready and excited to make the next move. I am stepping forward into the Executive Chair role, allowing me to get back to my founder roots and bring immense passion and focus to this next phase of Bumble’s growth. I believe in Bumble Inc.’s significant potential today more than ever before, and I am incredibly optimistic about the future.

In this next chapter, we will continue to work towards our North Star, our mission of creating healthy and equitable relationship through kind connections. How we do this is with continued focus on our top 3 priorities: customer, tech/AI and brand. Starting with customer. We have always been and will continue to be a customer-first company, which means that everything we do is to maximize success for our members. We are focused on customer pain points. We build on what is working for them and continuously innovate to improve their experience and strive to keep our customers safe. Trust and safety is by design, not an afterthought. Our second focus is on tech and AI. We leverage data, machine learning, next-gen tech and now increasingly generative AI to innovate and build for the next horizon of growth and impact.

Our customer base and the associated unique data set we have built up over many years allows us to deliver relevance and value to our customers in unique and meaningful ways. We are committed to integrating AI where possible into every step of the user journey beyond what we’ve already been doing for years via our algorithms. And finally but very importantly, our brand. It’s what drives loyalty and creates the network effects that lead to both top-of-funnel growth as well as bottom line results. Our brand helps us propel our mission and make a positive impact in the world. By focusing on these priorities, I believe we are well positioned for the future of relationships. To underscore the confidence we have in our long-term business trajectory, we are announcing that our Board of Directors has increased our existing stock repurchase program authorization from $150 million to $300 million.

Now moving on to our results. In Q3, our continued execution against our strategic objectives delivered strong financial performance across both top line and profitability. Across both Bumble and Badoo, we gained download share on a global basis and also saw accelerations in sequential paying users, demonstrating our continued ability to grow our footprint across the world. Total Bumble Inc. revenue this quarter increased 18% year-over-year to $276 million. And adjusted EBITDA reached $75 million, representing an adjusted EBITDA margin of 27%. Bumble app’s Q3 revenue grew 23% to $222 million driven by continued momentum in paying users, which were 2.6 million, up 25% year-over-year. From Q2 to Q3, we added 147,000 payers, an increase from the prior 3 quarters.

Our growth is driven by our sharp focus on the customer. We are making great strides on product innovation, further international expansion and continued focus on building a trusted and safe brand for women. Our product shipping velocity is stronger than ever, and we are pleased with our progress on this front this year. Our goal remains to enhance the core experience and explore new discovery and engagement models that are designed to reduce friction and emphasize efficiency, safety, kindness and compatibility in the matching-to-meeting process. Our goal is to get people online to go off-line. With respect to new features, revenue contribution from newer releases such as Compliments and Best Bees continue to ramp. As a reminder, Compliments is our message-before-match offering that encourages kindness and positive connections, while Best Bees is our AI-powered match curation tool, showing you the people who are most compatible for you and is currently included in our Bumble Premium subscription tier.

Q3 marked a meaningful step-up in Compliments revenue with positive user reaction from recent changes designed to drive greater awareness, visibility and payer conversion. We are also seeing improved activity and revenue metrics for Best Bees. As we mentioned last quarter, we are excited to be introducing 2 new subscription tiers for our members. These will not only enhance current offerings, but also enable us to better and more directly serve the needs of our high-intent, serious dating customers and Gen Z users. Our higher tier, which will be called Premium Plus, aims to elevate our power members’ dating experience to improve their chances for a match. Premium Plus is actively being tested in several countries with promising initial results.

Our lower price tier is also currently in limited testing. This tier is focused on helping our younger members express their personalities on a deeper level and find connection in fun and social ways. Our goal is to expand testing and launch both tiers in coming quarters. As always, we augment these new features with under-the-hood optimization that are meaningful in improving the user experience. In Q3, these included improvements in our machine learning algorithms, our recommendation engine, which have all resulted in increases in relevance and metrics with strong positive impact on user experience, especially for women. In addition to product innovation, a key focus area for Bumble app has been to grow its reach internationally. In Western Europe, we saw robust user payer and revenue growth.

We remained the number two dating app in Germany. And we gained download share in markets such as Austria, France, Switzerland and the Netherlands. Our Latin America and Asia expansion is also performing well, demonstrating the broad global appeal of our brand and product. Now turning to our other apps. Badoo App and Other revenue totaled $54 million in Q3, up 3% year-over-year. This marks 2 consecutive quarters of year-on-year revenue growth and sequential net add growth for Badoo, which is an exciting and encouraging milestone. We also continue to see improving trends across many metrics, including global registrations, monthly active users and engagement. As we plan for 2024, we are excited to build on this momentum with the brand and identity refresh aimed at improving awareness in key markets, especially among our women users.

We intend to supplement this with targeted marketing campaigns showcasing Badoo’s vision of becoming the app of confidence in 2024, enabling its highly loyal user base to express and be their real selves in a safe and trusted environment. Outside Badoo, we continue to be pleased with the performance of Fruitz. Its recent launch in the U.K. is the first step in its expansion into more international markets. Our product focus continues to be around Gen Z engagement and monetization with the recent launch of weekly subscriptions, addition of new features behind the paywall and progress of revenue optimization. Now moving on to the opportunity beyond dating. BFF or Bumble for Friends, the stand-alone app has now been rolled out in several markets, including the U.S. Downloads for the stand-alone app have been strong, and we are excited by the growth that we’ve seen so far for MAU, engagement and retention, particularly with Gen Z women.

As we look ahead, our near-term focus areas are on future development, in particular around groups and communities and driving greater awareness. In Q3, we leveraged our strength in back-to-school programming to increase U.S. college student awareness. And we intend to continue this in Q4 via partnerships that center on celebrating friends and communities during the holiday season. In closing, we are making excellent progress on our priorities and building momentum across our business. The execution of our strategy is driving results and is a testament to our team’s hard work and dedication, which is enabling us to deliver for our users and shareholders in ways no one else can. I’d like to conclude, as always, by extending my deep gratitude and appreciation to all of our employees and to all of our customers, partners and investors for their continued trust and support.

I cannot express how deeply grateful I am to have had the opportunity and privilege to lead as Bumble’s CEO for all of these years. And I look forward to stepping forward into this next role as Executive Chair. None of this would be possible without you, Team Bumble. So with that, onwards, and thank you so much. I will now turn it over to Anu for a discussion of our financial results and outlook.

Anu Subramanian: Thank you, Whitney, and congratulations on stepping forward into the Exec Chair role. I look forward to partnering with you on a seamless transition and welcoming Lidiane to Bumble over the next few months. And good afternoon, everyone. Our third quarter results reflected continued progress on our strategic priorities across our family of apps. We achieved strong revenue growth while operating with discipline to deliver strong margins and cash flows. As I walk you through our results, please note that unless stated otherwise, all growth comparisons are on a year-over-year basis. I’ll discuss Q3 before turning to our outlook for Q4 and full year 2023. And I will conclude with a preliminary view for full year 2024.

Total revenue for Bumble Inc. reached $276 million, up 18%. FX benefit was $2 million lower than what we had assumed at the time of our prior guidance. Both paying users and ARPPU contributed to revenue growth with total paying users increasing 16% to 3.8 million and total ARPPU increasing 2% to $23.42. Revenue from Bumble app was $222 million, up 23%. Bumble app paying users grew 25% to 2.6 million, adding 147,000 net adds sequentially. Growth in paying users was driven by both strength in monthly active users as well as payer penetration gains in many key markets. Bumble app’s ARPPU was $28.38, down 2% year-over-year but up 1% on a sequential basis. The year-over-year decline was primarily driven by geographic mix shift, partially offset by pricing optimization.

Now moving on to Badoo App and Other. Badoo App and Other revenue was $54 million, up 3%. Badoo App and Other paying users, excluding Fruitz and Official, grew 1% to 1.2 million. On a sequential basis, Badoo paying users increased by 40,000. Badoo App and Other ARPPU, excluding Fruitz and Official, was flat at $12.79. Turning now to expenses. Total GAAP costs and expenses were $246 million for the quarter, up 20%. On a non-GAAP basis, excluding stock-based comp and other noncash or nonrecurring items, our total non-GAAP costs and expenses were $200 million, up 17%. Cost of revenue was $79 million and grew 25%. As a percentage of revenue, cost of revenue was 29% versus 27% in the year-ago period mostly due to higher App Store fees as a result of compliance with the Google Play mandate.

Sales and marketing expenses grew 10% to $66 million. This represents 24% of revenue versus 26% in the year-ago period. G&A expenses were $33 million or 12% of revenue compared to $29 million or 12% of revenue last year. Product development expenses were $22 million or 8% of revenue versus $18 million or 8% in the year-ago period. We reported Q3 GAAP net earnings of $23 million compared to $26 million last year. We delivered adjusted EBITDA of $75 million, up 22% and representing a 27% adjusted EBITDA margin. This exceeded our guidance of $71 million to $73 million and reflects our ongoing commitment to financial discipline. While we continue to invest in growing our apps, we remain disciplined on costs and are pleased with the progress towards our margin target for the full year.

Turning now to the balance sheet. Our Q3 cash position remains as we generated positive free cash flow of $59 million. We ended the quarter with cash and cash equivalents of $439 million. Our total debt position was $622 million, of which only $6 million is due over the next 12 months. Due to the leadership search in Q3, we did not buy back any shares during the quarter. Approximately $129 million remains on our previously authorized share repurchase program. And today, we announced an incremental authorization of $150 million, bringing the total buyback authorized to date to $300 million with $279 million remaining in aggregate. We are committed to resuming our buyback program and returning capital to our shareholders. Now moving on to our financial outlook for Q4 and full year 2023.

While we continue to see strong trends in usage and monetization in general, as we look to the rest of the year, we are monitoring the current macroeconomic backdrop, including the war in the Middle East and the resumption of student loan repayments. Additionally, we are also seeing unfavorable trends on FX compared to our prior outlook. As a result, for Q4, we now expect the following: total revenue between $272 million and $278 million, representing a growth rate of 14% at the midpoint of the range. Our outlook assumes FX impacts to be $6 million worse than what we had assumed at the time of our prior guidance. Our outlook also assumes $1 million of impact from the ongoing conflict in the Middle East, mostly in Bumble apps. Bumble app revenue between $221 million and $225 million, representing a growth rate between 16% and 18%.

Our outlook assumes FX impact to be $4 million worse than what we had assumed at the time of our prior guidance in addition to the impact from the conflict in Israel. With respect to paying users, we expect full year Bumble net adds of approximately 510,000 to 515,000, which implies approximately 75,000 sequential net adds for 4Q at the midpoint of the range. We expect Badoo sequential net adds to be flat to slightly positive in Q4. We expect Q4 adjusted EBITDA between $72 million and $75 million, representing 27% margin at the midpoint of the range. For full year 2023, this translates to total revenue between $1.05 billion and $1.056 billion, representing a growth rate of 16% to 17%. This assumes in aggregate a $9 million impact from worsening FX versus our prior guidance and the Israel conflict.

Bumble app revenue to be between $845 million and $849 million, representing a growth rate of 22%. This assumes in aggregate a $6 million total impact from worsening FX versus our prior guidance and the Israel conflict. For adjusted EBITDA, we maintain our expectation of at least 100 basis points of year-over-year margin expansion. As we look ahead to 2024, our fundamental strategy remains unchanged, and we are very excited about the future of our business. We have an exceptional brand that is loved and used by nearly 4 million paying users around the globe and growing. We have a strong product pipeline that leverages innovative technologies while prioritizing safety for our users. We are just beginning to realize the potential of our apps, and we see tremendous opportunity to continue to expand our reach in more countries.

As we work to refine our planning for next year, we expect another year of solid growth for our family of apps. At the same time, our preliminary outlook also takes into consideration the early stage of our planning process, our leadership succession plan, the trends we are seeing and expected headwinds from FX. As such, our initial assumptions for 2024 are for total Bumble Inc.’s year-over-year revenue growth rate to be at least in the low teens. This assumes approximately 150 basis points of estimated year-over-year headwinds from FX. On an FX-adjusted basis, this would translate to a growth rate of approximately 15%. As we finalize our investment priority for next year, we will continue being disciplined on our spend. We expect full year adjusted EBITDA margin to expand between 50 to 100 basis points next year.

We will share a more comprehensive outlook in our next earnings call when we discuss Q4 results. Before I end, I’d like to echo Whitney’s thanks to all our teams for their hard work in driving our business forward. And with that, operator, we can open it up for Q&A.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Alexandra Steiger with Goldman Sachs.

Alexandra Steiger: Congrats, Whitney, on your new role. Maybe 2 questions on the transition here. First one on timing. Could you maybe elaborate a little bit more on the timing of the announcement? When you look at some factors inside the company versus outside, why do you think this is the right time for you to make that move? And then second, listening to some interviews with Lidiane, it appears that she has a very valuable background in terms of AI and bringing features into existing products and services. To what extent is this going to be a focus for her at Bumble? And could it grow with some of the AI initiatives you have played out in the past few quarters?

Whitney Wolfe Herd: Thank you for the questions. So the short answer was we didn’t make this decision based on timing. This was about finding the right successor, the right leader. The Board and I have been focused on an extremely thoughtful and very deliberate succession plan for some time. And so finding the right leader was really the key. And you already touched upon just one of many of Lidiane’s incredible strength, and we’ll get into that in a moment. But I have to say the short answer is with someone as remarkable as Lidiane and keeping me engaged as the Executive Chair focused on my strength, leaning into my superpowers, right, I think so many of the amazing efforts around our mission, our brand, our marketing, our social impact, our customers, those are things that I’m deeply passionate about and do extremely well so allowing me to move beyond the day-to-day and get into this founder mindset on behalf of Bumble Inc.

You pair her with me, it’s a remarkable opportunity. I don’t think people are fully recognizing how powerful that can be. So really, ultimately, it’s going to allow us to both innovate but drive growth across the business, drive new products. And now moving into your second question, let’s just talk about Lidiane for a moment. So first and foremost, she is incredibly unique. She is not only wildly intelligent and capable, she has insane followership. I mean, her people that she has led love her. That was always going to be critical for a leader to be my successor. And then when you double click on her qualities and her experience, she’s a software engineer. She speaks system. She speaks the language of technology. She is going to get in there and be not only a technology mind but an incredible product innovator.

She is a customer-first product person. If you look at the products she’s worked on, these are products we love and adore. So with the note on AI, the short answer is yes. She is going to show up on day 1. We’ve been doing so much work on the back end of AI already ranging from, I would call it, 3 main buckets. Tools, where we can integrate different AI tooling to enhance the customer experience, to supercharge the under-the-hood efforts and then also drive efficiencies and drive strength as far as the leadership team and the broader teams go. The second bucket is really the noncustomer-facing efforts that she’s going to be leaning into. This is supercharging our algorithms, further enhancing our safety and moderation efforts, using AI as this underpinning supercharge effort to bring the world closer together and to drive healthy relationships.

And then the third bucket is the customer-facing stuff. This is what we’re all reading about and thinking about all day. This is where generative AI comes in. She has done this. She knows this. It is natural and native to her. It’s not something she needs to learn when she arrives. She will show up day 1 ready to roll. And so we’re so excited about the opportunity, what this means for the member journey, the member experience. And we think this gives us a massive competitive edge. So with that, I hope you can hear it in my voice, I am in this to win this. She is so excited, and I think we are going to embark on Bumble’s most exciting chapter yet.

Operator: Your next question comes from Cory Carpenter with JP Morgan.

Cory Carpenter: I had two. Just first, hoping you could expand on the macro impact that you’re seeing. You called out student loan repayments, but where is this impacting the business the most across Bumble app and Badoo and ARPPU versus payers? And then a new — thank you for the initial ’24 guidance. Curious at a high level, any framing that you would put around expected contribution from Bumble app, Badoo or ARPPU versus payers?

Anu Subramanian: Cory, sure. I can take that. So on the macro, like you said — like I said in my prepared remarks, we are largely seeing it around our younger users, our more price-sensitive users. Those are the users that obviously are going to be impacted by the student loan repayments as well. We are seeing it much more broadly. So for example, Bumble Premium adoption rates have stayed pretty steady through the quarter, but we are seeing a little bit of impact on the younger users as it relates to Bumble Boost. So again, it’s something that we are keeping a close eye on, but we think it is largely limited to a certain cohort that is more impacted by this. Obviously, this is a U.S.-specific issue. So we are seeing this on Bumble much more versus on Badoo.

To your second question, just to elaborate a little bit on how we are thinking about 2024 guidance is now obviously, as you can imagine, we are still very much in the planning stages for next year. And there are still a lot of moving parts in terms of how we are thinking about 2024. I will say that there is a ton of excitement around what the product road map looks like, what our international plans are. And the teams are very, very deep in the middle of putting all of those on paper. And so we — so far, we are very, very excited about what this means for us for next year. We wanted to provide some high-level numbers so all of you can have some context going into next year, recognizing that we have a CEO transition succession in place. And so we will be evolving our thinking as we get into our Q4 earnings and into 2024 specific guidance.

Right now, we are thinking about total Inc. revenue, like I said, in — at least in the low teens. We do have a 1- to 2-point of FX headwind next year. So that’s why on an ex FX basis, on a like-for-like basis, you’re talking about Inc.-level growth of about 15%. That’s how we’re thinking about total 2024 guidance. If you look at the components of it, we are very, very excited that we will see strong contributions from Bumble as well as Badoo, which is on a good path to stabilization. Bumble BFF will largely be a contributor from a user growth perspective. We do have some monetization plans, but a lot of it will still be in testing next year. And Fruitz and Official are also exciting additions to the business. For Bumble app, again, more to come on that.