Bumble Inc. (BMBL) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us today for Bumble's presentation at NASDAQ. Please refer to the following forward-looking statements on the slide. And with that, I'm going to turn it over to Lauren from Morgan Stanley to help us with the fireside. Thank you.

Great. Thanks, [ Brinlea ]. Good evening, everyone. I'm Lauren Schenk, Morgan Stanley's Small and Mid-Cap Internet Analyst. And we're thrilled to be joined this evening by Bumble's Founder and Chief Executive Officer, Whitney Wolfe Herd; and Bumble's President, Tariq Shaukat. Thank you both so much for joining us today. Before we begin, one quick housekeeping items to get out of the way. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So with that out of the way, I want to start with you, Whitney. One of the aspects of the business that investors are always very impressed by is that the Bumble app has the highest revenue per payer in the online gaming industry. Could you talk a little bit about how you're thinking about balancing pay user growth versus ARPPU growth over the medium to long term? And as part of that, how you're thinking about testing the price elasticity of Bumble right now and opportunities to expand that in the future?

Sure. So the monetization strategy that we have is ultimately to generate high-quality, sustainable revenue growth. So our goal is to grow revenue while also growing users and also maintaining this strong user experience and overall ecosystem of the Bumble app. So our focus over the last 12 to 18 months has really been to move our consumable offerings into our higher tier subscription offering, which is Bumble Premium, and we've been rolling that out. So the idea has really been to make the Bumble experience better for everyone by adding this additional value through these value-added features. So as a result, our initial focus with that 2-tier has really been serving our most engaged customers, and this led to increased payer penetration, substantial improvements in ARPPU, like you mentioned, but also and maybe most importantly, better engagement and stronger retention, which just overall benefits the incredible ecosystem. More than 70% of paying users are choosing that higher-tier subscription, and that speaks to that incremental value that's really being provided. And to talk about where this can go, this is ultimately just the starting point for unlocking more paying user growth while also continuing to increase ARPPU. So looking ahead, our product road map for 2022 really contains a number of payer expansion initiatives that builds off of this foundation to our payer growth strategy. And we're going to expand the payment entry points with lower tier bundles and subscriptions, but as well as new consumables which help us expand that total number of paying customers [ of people ] who ultimately choose to pay for the experience at large, and we're going to focus on continuing to drive adoption of these premium products, all while continuously reinvesting in the premium experience as well. So when you look at where this can go, there's just many, many opportunities to both improve monetization at large but to continuously grow payers, ARPPU and, of course, to improve the ecosystem over the next several years. As far as price elasticity, Tariq, I'd love for you to jump in on that point to give you an opportunity to share your thoughts as well.

Sure. So on price elasticity, we are -- we operate a very test-and-learn culture. It's one of the core strengths of the business is that we've got hundreds of experiments running in any given month in any given quarter. And a lot of those are focused on understanding what is really the appetite to pay, the propensity to pay, the elasticity at a local market level and really ensuring that we're setting the right price point. It is not a strategy to get the highest level of average revenue per paying user. It's not a strategy to say how high can the price could go. It really is to Whitney's point, the strategy to say what is the optimal point both from a revenue standpoint and from a quality of the ecosystem, quality of engagement standpoint, so we build the right business for the future, not just to maximize any given month's return. So that's all done through a very active experimentation model that we have in place.

Okay. Great. That's a really great overview of sort of the medium- to long-term strategy. Maybe if I could ask a little bit shorter-term question. On your last earnings call, you said that you expected Q4 sequential net adds for the Bumble app to exceed the 60,000 that you added in the third quarter. Can you talk about the drivers behind that acceleration? What gives you confidence in that acceleration? And then obviously, the macro environment is changing every day. But is there any sort of quarter-to-date color you can share in terms of what you're seeing across key geographies relative to 3Q?

Sure. And so just to recap, what we have talked about for the prior quarter, and then I'll talk about what we're seeing for the current quarter. As you noted, we saw the -- between Q2 and Q3, we added 60,000 paying users on the Bumble app. The primary driver for that number being 60,000 was that we made a decision in early Q3 to turn off third-party payment options on Android for roughly a month in Q3. This was in preparation for some changes that Google was making to the payments environment, and that resulted in a loss of certain payment options that led to lower conversion on the Bumble app. It actually led to good gains in ARPPU in general. So people on average traded up to other types of subscriptions, but it did result in that trade that I mentioned of lower payers but longer tenure subscriptions essentially. We have since turned that off after we've sort of learned what we needed to do and as Google pushed out the deadline around the payment changes that they were making. We've taken a lot of that into account as we think about our future plans. But certainly, as we look at Q4, we expect to add more paying users. We've seen the acceleration that we were hoping for by turning those third-party payment options back on. And we, on a sequential basis, expect Q4 to be meaningfully better than Q3 on a paying user front, and that is despite the normal seasonality that you see in Q4. So we do know fundamentally, when you take a step back, paying user growth on the Bumble app is driven by a number of factors. It's driven by user growth, and we've seen robust user growth globally. On Bumble app, we're continuing to see that growth in Q4. It is driven by payer penetration improvements, which we are continuing to see as the third -- the second tier, I'm sorry, the more premium tier is continuing to get adopted in the earnings call. We talked about how over 70% in some markets of users are opting for that more premium tier. But as people get more used to that tier, they better understand the value being provided. We do see payer penetration improvement. And in the core app itself, engagement continues to go up our day 1, day 7, day 30 retention, stats are all steadily climbing upwards, our good chat rates are steadily climbing upwards. So all of that fuels this ecosystem that leads to people wanting to convert to unlock essentially the value-added features that Whitney talked about.

Okay. Great. Maybe Whitney, how are you thinking about the product road map for Bumble app in Q4 and beyond? What are some of the new features you're most excited about from either a user engagement or a monetization perspective?

Yes, sure. So I actually would love to lead by saying that today, it announced that Bumble is named one of the top apps of 2021 by Apple. So we're super honored and excited about that. They named the theme of the year, Connection, which speaks to everything we've been building and everything we believe in that connection is ultimately the most important aspect of so many of our lives. And so that was a huge honor. We're very excited about that. And they namely honored us because of a lot of the product innovation that we made over the last year to help people deeper engage on that post-match experience. So you saw a lot of post-match in 2021. And I think as we look to -- let me refresh what that means. Post-match, meaning giving folks more meaningful ways to engage once they have made a match. So whether that's through our features of video chatting and a lot of these COVID -- COVID design features, night in to play games with one another instead of going out to a lot of social settings. So we really spent 2021 optimizing that post-match experience. And what we're super excited about when it comes to 2022 is the inverse of that, which is pre-match. So really fueling engagement and fueling growth through really focusing on what happens before you find that match. How do you socialize in maybe even a group of people on our product? How do you see people's interests, personalities before you become a match with them in a deeper, more meaningful way? I think you've seen very, very early innings of the foundation of this rollout with our new profile redesign, which is now live, which really gives you a more robust understanding of who you're talking to and who you might want to match it with, but that's just the top layer of what is to come. And as we look to the future of our product road map, dating is all about giving you context, giving you information and making sure that we can help you meet and match with the people you actually want to meet and match. And so that is extreme algorithmic improvements over the coming quarters currently being worked on right now, as well as a lot of new optimized features surrounding both the male and women experience. So to give everyone a little bit more context right now on the Bumble app. There are still a lot of barriers and friction points, which were strategically built. It is an incredible way to guarantee monetization. I think you've seen with some of our peers, they actually struggle to monetize because they give you all the features upfront in a freemium format. So when you have everything for free, it's really hard to incentivize anyone to get behind the paywall, and we've been super methodical and strategic about really offering a core strong, safe, foundational freemium experience, but with such an opportunity to unlock and create entry points for monetization along the way. And so when you think about the male optimization in a heterosexual format in 2022, to give them more ways to engage, to search for, to see and attract what they're looking for. And then on the flip side, to take some pressure off of women and to further invest in our core value proposition of giving women safety control, empowerment. I think you'll see a lot of innovation that -- that fuels not only monetization but better engagement, better top-of-the-line growth, and we'll just support our organic growth story that we've been so good at sustaining over the last 7 years.

Okay. Excellent. So you've talked a lot about Bumble app and undoubtedly, you've built one of the strongest, most differentiated brands and online dating with that brand. Could you maybe talk a little bit about how you think about expanding the brand into other relationship verticals, either through Bumble BFFs and Bizz, and maybe to other verticals as well?

Yes, absolutely. And so sorry, the WiFi we're on today is a little unstable. So I think I heard that question properly. But you were asking around Bumble BFF and Bizz, correct?

Yes. How do you leverage the Bumble brand and online dating to other verticals?

Sure. So essentially, we have made a bet as early as 2016, that the Bumble app customer is different than the average and otherwise dating app customer, right? And in the sense that we have built a brand that actually goes beyond dating and goes beyond this stigma that might surround the historic dating app approach. And this was validated by the customer behavior as early, as I said, 2015, '16, when we saw people engaging for platonic activity. They were hacking their profile, changing their genders to look just for women as women who are already married or in relationships. And so this has become a big part of our business to -- from an engagement standpoint. Over 10% of our daters actually use the 2016 version of Bumble BFF to find friends and to establish themselves in new cities. To create community, so on and so forth. We don't need to get into all the use cases, they're countless. But now we are really taking the desire of that customer and watching what they've gone and done on other platforms with the people they've met from us. Meaning, they meet people on Bumble BFF. And then, because there's no group format right now on Bumble BFF, they go and take that community and foster it somewhere else. So we are going to take back that customer behavior. So this is extremely beneficial and profound for our business at large for a few reasons. Let me explain why. Churn is an inherent risk inside of dating apps no matter what. However, churn for us is something we welcome because it creates the flywheel of organic growth, right? Virality. People go get married on Bumble, they throw a Bumble-themed wedding. This happens every weekend. That just leads to new singles joining our product. But on the flip side of that, LTV is incredibly important. And so being able to establish these on-ramps through welcoming platonic customers into our ecosystem. And if and when they become single, or if and when their friend becomes single, they have this natural mechanism to put them back into the dating ecosystem. And this has been proven the BFF customer who also uses Date is a better paying customer. There's a higher propensity to pay, they pay more. So this is all validated. So as we look to the future, we're just very excited about the new product coming. You can expect early iterations of it to start coming out in Q1 and then further optimizations after that. And this is really all about just blowing open the TAM for the folks out there that are like, "Oh, I love Bumble, but I'm married. I love Bumble, but I don't want to be on a dating app." And that captures this exponential TAM that nobody else in our space is able to tap into.

Okay. Excellent. I don't want to forget about the second brand in the portfolio, Badoo, which has been more negatively impacted from COVID this year given its emerging market exposure. Could you talk a little bit about the high-level strategy for that brand over the next several years?

Yes, absolutely. So I think it's really important to remind everybody on the call that might not be as familiar with the Badoo customer base or the Badoo story. Badoo has a remarkably wide, vast and important customer base. This customer is very different geographically, and actually from a demographic standpoint at large, it's very different than the Bumble app customer, which is great in the sense that there's not competition for the same user, right? This gives us such a unique opportunity as a group to really capture everyone. Quick example. If you look at Paris as a city. Paris as a city will be a market that we over-index marketing for Bumble app. As you go to the outskirts of Paris and you look at all of the areas in neighborhood surrounding Paris, it's a great opportunity for Badoo. So Badoo is, generally speaking, an emerging middle class market, very international. And they are very avid fans of the product. So when we look to the importance of marketing to them and reshaping the brand in the future, it's all about leaning into what they need, expect and want from a dating platform. We have these remarkable features on Badoo like Talk to Someone, which allows these folks which the customers, generally speaking, they work 2 jobs, they're single parents. They are more strapped for time and usually resources. So having the opportunity to lean into the great features of Badoo, like Talk to Someone, they can see who's online right then, right there and find connection, find community, which Tariq will go into. But we're really excited to just lean into this and to further invest in that audience, particularly, and let it grow from there. So Tariq, do you want to go into some of the features and how we look to the future of Badoo?

Yes. I think the -- I think you covered a lot of it, Whitney. I think there's a couple of points I would make on this. One of them is the core value proposition of Badoo with the user base that we are serving, we were seeing -- really evolve through the pandemic, and it's one of the things that actually makes us very excited for the future of Badoo. When you look at app store reviews, as an example, on Badoo, there are actually some of the best in the dating industry. With the people who are using Badoo, we do see engagement improvements. We do see chatting improvements, et cetera. But the value proposition that people are most excited about is the immediacy of the engagement. It is the fact that Whitney mentioned that you can talk to somebody. Right now, you can break out of this bubble of loneliness that you're in or that you can fit it in between your jobs in your home and your family obligations or whatever it is that's going on in your life, you can -- Badoo is basically built for you. And so a lot of the features that we are baking in are really trying to lean into that position. That is really something that's emerged as part of the COVID, and we think post-COVID dynamic, the need to connect with people very, very quickly, very, very seamlessly with low friction. And so that is, I think, a major trend. It does lead us to see those engagement improvements. To the earlier part of your question, Lauren, I think that because of the demographic and the kind of professions and the family circumstances, a lot of our Badoo users, it is more impacted by COVID changes. And so when we see lockdowns like we're seeing, unfortunately, in Europe right now, in countries like Austria, that does not really impact the numbers that we see on Bumble, but it does impact our Badoo users. The ones who stay engaged are continuing to be engaged and we're very focused on serving them well, but there's a number of people who -- there's just too much going on in their life and when restaurants shut down and they lose their job temporarily, things like that, they disengage from the category and then come back when things get better. So we do see more volatility in those numbers. And that even was demonstrated with the reaction to the third-party payment test that I talked about, where we had the impact of the Android changes. And Badoo is a much more Android-heavy platform than Bumble is, but we also had the COVID headwind topped on top of that. So where we see the acceleration that we talked about on Bumble, we see -- I'd characterize it more as stabilization on the Badoo side, given the COVID situation is still somewhat of a headwind for the user base on the Badoo side.

Okay. Really helpful. And that's a good transition to my next question, which is a topic that's really been increasing and focus over the last few months for App Store fees. Could you talk about the potential impact to the business from the recent Google announcements? And hypothetically, if Apple were to follow suit as well, sort of the puts and takes across your entire business?

Yes. This is a really -- as you hinted, this a really complicated area. We've got very strong partnerships with both Apple and Google and -- but we are very dependent on those platforms. And things are changing very quickly. There's this December 9 time line right now on the Apple side, around payment steering, that we're waiting to see what happens with the most recent appeals, but also waiting -- Apple has not really given any guidance that -- about how they're going to allow it to be implemented, and so we are kind of ready to go with -- because we do so much with third-party payment platforms, we have the technology, if you will, we've got the platforms in place. The question is an implementation question there with those soon-to-come changes, assuming the legal plays out the way I just mentioned. When you talk about longer-term App Store fees, so that would provide some potential relief in terms of steering. If Apple were to follow suit with the change Google made, which for those not familiar, was to drop the apps -- the Play Store fee from 30% to 15% for subscriptions. The majority of our revenue is subscription revenue, and on iOS, which is a large amount of our -- particularly Bumble user base, that is the only payment mechanism available. So it would have a real significant impact for our iOS users, substantially more than just the steering options would have. So we're waiting to see exactly how this plays out with Apple on both steering and on the App Store fee itself. For Google, there's the drop in the fee which is important, and we are happy to see. There's also this looming question of whether they are going to try and restrict steering from -- to third-party payment options as well. As currently, there's a March 30 deadline on that. Taking all the lessons we've had from the work we did in July and August, we think we're in a pretty good shape if they do that, but that would have cost implications. So it's a bit more of a balance on the Google side depending on how they implement those Play Store changes. But it's constantly fluid, as you know.

We'll keep watching the headlines. Could you talk a little bit about your M&A strategy? Is that a high priority when it comes to thinking about uses of capital? And what would you look for in a potential acquisition target?

Sorry, I was muted. So yes, let's talk about M&A. As we've said beforehand, we really believe that we're in a very fortunate position where M&A is certainly not required for us to maintain our growth or our dominance in any category. But we believe that the runway in TAM for both Bumble app and Badoo, as stand-alone without M&A, really remain very significant. So we certainly don't have to rely on M&A. That said, we have a really strong engineering and product team, and we also have a lot of shared resources that could add tremendous scalable value to emerging products or to interesting products or companies or teams. And we have this extreme flexibility to buy and to build, right? So we would absolutely be open to and are open to both buying and building new products. And the way we think about how we would even back into an opportunity like that from a very strategic, very measured way, it's all working backwards from our northern star, which is our mission. And having that very clear mission-driven attitude, behavior set collectively across the group, gives us really clear definition on what we're doing and how we -- how we get there. So if our mission in our northern star is how do we help create healthy and equitable relationships for everyone across the globe, we look to areas of opportunity that we are not serving at 100% right now. Are there categories, groups, pockets of TAM when it comes to audiences and user bases that we could serve really well by buying and/or building? And so this is basically our very disciplined approach to thinking about M&A with a lot of operational and financial rigor. So that's really high level, how we're looking at it, but you can expect in the future to see a buy and build an additive approach to our portfolio, but not because it's needed.

Okay. Great. Sorry about that technical difficulty. We are running up on time, but I do want to squeeze in my one last question, which is the metaverse. It seems like a buzzword these days, everyone is asking about it. wanted to hear your perspective on what that means for Bumble, particularly BFF, and how you're thinking about that over the next several years.

Absolutely. So the metaverse is something that we all need to think about, but I want to be clear that it's certainly not taking priority over our strategic goals and priorities, nor is it a distraction to any degree. We really believe that BFF and the future of that gives us a platform for Bumble to become a leader in this Web 3.0 world built on blockchain technology, and we believe that it will just basically enable a level of participation and further empowerment, which has always been core to our mission. That will just really help that mission further come to life. Web 3.0 will become a way for our members to own their experience on Bumble. So for example, this could happen through the communities they build, the virtual goods and experiences they acquire through new ways of owning their identity as they navigate this "metaverse." And so as an engineering-oriented company, we're very excited about the possibilities. It's a fantastic, creative opportunity for the team and an exciting, robust way to really reinvent the future of human connection, which has always been core to our goals. But again, I want to be very clear that it is not coming in lieu of or in place of our very, very key strategic priorities that we're very, very focused on. Tariq, would you like to add anything?

Well, I think in the interest of time, I'll leave it at that. Unless there's any clarifying questions, Lauren, that you'd like to ask?

That was a great overview. Thank you both so much Whitney, Tariq. Really appreciate your time. Thanks, everyone else for joining us.

Thank you, everyone.

Thank you. Appreciate it.

[indiscernible] Bye Lauren, thank you.