At first glance, the bullish narrative for dating app Bumble (NASDAQ:BMBL) should be self-evident. Following draconian mitigation protocols associated with the COVID-19 crisis, love should be in the air, if anything, because of the restlessness that the pandemic imposed. Unfortunately, a negative undercurrent in society may stymie Bumble and the broader dating ecosystem. I am bearish on BMBL stock.
BMBL Stock Suffers an Unfavorable Backdrop
Earlier this year, CNN Business published a story that really should have gotten much more press: engagement ring sales dipped sharply, according to Signet Jewelers (NYSE:SIG), the nation’s biggest jeweler. As the news agency stated, the pandemic “dented sales of engagement rings as relationships faltered or never even blossomed in the first place due to the lockdowns.”
In other words, as the lockdowns began, the governmental measures killed early momentum in potentially budding relationships. Further, the crisis represented a double-pronged weapon because it also sparked a dramatic decline in dating.
Using Signet’s words, this dynamic created an “engagement gap.” Notably, Signet Jeweler president and chief consumer officer remarked that “[w]e’re still seeing it today.”
Even worse, the dating and relationships industry suffers from headwinds. In particular, brides have opted for less traditional wedding attire, which also includes lower-cost options. Of course, such shifting consumer behavior stems from the economic challenges that the response to COVID sparked, predominantly higher inflation.
To be sure, Bumble specializes in facilitating the initial connection. Therefore, the above headwinds of fading engagement ring sales and reduced demand for premium wedding dresses might not seem relevant to BMBL stock.
However, the main point is as follows: if economic challenges forced harsh decisions for what should be happy, life-changing events, they will almost certainly roll down throughout the dating and relationship value chain.
Economic Woes Pressure Bumble’s Core Demographic
According to a survey of 1,000 adults by Western & Southern Financial Group, an individual earning less than $30,000 a year represents a “deal breaker” for daters. Fundamentally, that’s an awfully harsh red flag to put on someone during an economically challenging time. Such heightened expectations might discourage Bumble’s core demographic (i.e. young, single women and men), creating distractions for BMBL stock.
True, $30,000 a year practically is the poverty level if you live in a major metropolitan area. However, when you factor in the real median U.S. household income of $70,784 in 2021, you’ll find that an individual income of $30,000 is roughly close to the average.
Now, it’s also true that the labor market has been robust, with the latest jobs report coming in hotter than anticipated. However, when you drill into the granularity, you’ll discover that both the length of the average work week and the pace of hourly wage growth declined. Therefore, even with the positive print, millions of Americans still face tough challenges.
Another factor to consider is that younger people (again, Bumble’s core demo) typically are not as economically valuable as older workers due to a lack of experience. Put another way, the present post-pandemic environment heaps challenge upon challenge for Bumble’s target audience. Over time, this circumstance will almost surely negatively affect BMBL stock.
Bumble’s Headwinds are Showing Up in Its Financials
What makes the headwinds working against the dating and relationship sector so troubling for BMBL stock specifically is that investors can recognize the impact on the underlying financial print. Sure, one can make the argument that since at least the first quarter of 2022 through Q1 2023, revenue increased sequentially, from $211.2 million to $935.25 million. Unfortunately, the same cannot be said for gross profit. In Q1 of last year, Bumble posted a gross profit of $154.42 million. For Q1 of the current year, this metric slipped to $139.22 million.
Further, the bottom line conspicuously worsened. In the most recent quarter, Bumble suffered a net loss of $1.61 million. One year ago, the company posted net income of $16.38 million. While it’s great that Bumble’s top line continues to expand, the issue is that it’s not expanding enough. Given the headwinds tied to the love game, the backdrop doesn’t appear auspicious for BMBL stock.
Is BMBL Stock a Good Buy?
Turning to Wall Street, BMBL stock has a Moderate Buy consensus rating based on 10 Buys, six Holds, and zero Sell ratings. The average BMBL price target is $23.47, implying 44.16% upside potential.
The Takeaway: It’s Not Necessarily BMBL Stock, It’s the Economy
On paper, Bumble really should be killing it. Following a shutdown of normal social activities for two years, pent-up demand seemed poised to skyrocket BMBL stock. Unfortunately, the underlying ecosystem suffers badly from economic woes. With the entire value chain of the dating and relationship sector at risk, Bumble appears cruelly exposed.