Bumble Inc. (BMBL) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Lauren Schenk, Morgan Stanley small and mid-cap Internet analyst, and I'm excited to be joined this morning by Anu Subramanian, Bumble's CFO; along with Tariq Shaukat, Bumble's President. So thank you both so much for being here. Before we begin, a few housekeeping items from the Morgan Stanley side. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com\researchdisclosures or at the registration desk. And from Bumble, this presentation, including our comments and answers to questions, may include 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. Descriptions of these factors and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our earnings press release dated March 8, 2022, in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2020, and our subsequent periodic filing.

That's a mouthful.

Right. All right. So maybe we'll start, first of all, bigger picture. For those that are newer to the Bumble story, lay out the company's mission, how you're differentiated and sort of the key strategies going forward.

Sure. And again, thanks for having us. It's wonderful to see everyone in person. So at Bumble, we are a mission-led company, and the mission is to create a world in which all relationships are healthy and equitable. And we operate 3 different dating apps. And the first is Bumble, then Badoo and then Fruitz. Bumble is very well known here in the U.S. It is the #2 highest grossing dating app in the world. It is the third most downloaded dating app in the world. And it really is founded on the premise of women making the first move, really changing the antiquated gender dynamics that exist in the dating world and creating a more women-led experience. Badoo is the second most downloaded dating app in the world. It is an app that's not terribly well known here in the States, but is very, very strong in Europe. It is very strong in Latin America. It really has a global scale. It is a top app in the lifestyle category in over 90 countries around the world. And it really caters to the middle-class consumer. It is focused on quick connections, meaning that you've got time in your day, you want to meet somebody, you want to get on to an app, you want to start chatting, discussing, meeting people. And that's what Badoo is all about. That is central and core to the Badoo value proposition. And then lastly, there's Fruitz, which we acquired this quarter. Fruitz is a smaller app. It is a very fast growing app in Europe. And it is really an app that has caught the attention of the Gen Z consumer, particularly in France, their home country. In Q1, it was the second most downloaded dating app in France. And it is really premised on the idea of being honest and transparent about your dating intentions, what are you looking for, what type of person are you looking to meet and what type of relationship do you want.

Excellent. All right. So why don't we dig into Bumble brand first a little bit. Revenue growth has been relatively consistent, but there's been some trade-offs between ARPPU and paying user growth. Maybe talk about what caused some of that lumpiness in '21 and how you're thinking about balancing that going forward.

Yes, happy to. So before we even jump into it, I think at the outset, it's important to remember that our goal always is to maximize revenue. That is -- that was the goal last year. It continues to be a goal this year as well. The way we thought about revenue last year, and this is going back to maybe Q4 2020 was when we -- and this is when we launched the 2-tier pricing on Bumble was how do we get our existing paying users to pay more. So how do we provide additional features that they see value in that then incentivizes them to pay us more. So that was the premise of how we thought about 2 tier. Obviously, as you've seen, adoption on 2 tier has been phenomenal. More than 75% of our paying users are using that today. And that's obviously led to a growth in our people over the course of 2021, which is -- has been very healthy, and it has also led to growth in paying users. The focus as we shift to 2022 is now how do you open the funnel and how do you get more paying users into the ecosystem. Now as we said, on our earnings on Tuesday, approximately 10% of our total user base is a -- pays for a subscription or anything else on Bumble. So we still have a vast majority of people that use our app, but are not paying for it today. So a big focus for 2022 for us is going to be how do you create features from a product perspective to help them become a paying user. And it is less about us launching multiple subscription tiers. It's more about us curating bundles for them that are specific to their needs and uses and wants, right? So that's going to be a big focus for us. We are expecting very healthy growth in paying users this year compared to even 2021, which was also a strong year for us. So again, very excited about that. And from an ARPPU perspective, given all the changes that we're making on the paying user side, our goal is to keep it as stable as possible. We have plenty of things on the product road map in terms of launching new consumables, launching virtual goods, et cetera, that we are testing. We -- if they land the way we want them to land, that's obviously going to be upside to our people, but we haven't baked any of that into our guidance yet.

Okay. And from a cadence perspective, how would you expect paying user growth to sort of trend across the year?

I think in the first half of the year, you will see it be -- relative to Q4, it will be higher on a net add perspective. Q1 will be better than Q4. Q2 will be better than Q1. And then I think we are expecting to see a step change improvement in Q3. It's specifically related to a few product initiatives that we have. And in Q4 net adds, we'll see a little bit of a decline, again, partly seasonality, partly because of the Q3 impact. So I think first half will be sort of more in line with what we are seeing and then the second half will likely be a bigger impact. That's how we're thinking about it.

Okay. Great. You reported earnings on Tuesday and as part of that announced that you're shutting down your Russian and Belarus operations. Represented about 3% of last year's revenue, primarily -- or it was entirely from Badoo. Talk about how you're navigating that. You have an office there as well, sort of the planning going forward.

Yes. We -- so we have an office in Moscow. What we announced is that we're closing that office. It's about 120 people out of the 980 that we've got in the company. And it is an office that has really been an engineering center for us, but one that we've been diversifying away from for a number of years. So if you look at the growth that we've had in the company in terms of headcount, the majority of that has been engineering and technical head count. It has been focused on Spain and the U.K. and the U.S. And the majority of the functions that we have in Russia are duplicated in other areas, meaning the skill sets are duplicated, the teams are co-mingled across geographies. This was an intentional strategy that we had to just reduce dependence on any particular region and build resilience into the company. So as we shut down the operations, we are prioritizing the wellbeing of our team, of course. And we are really just taking steps to make sure that the product road map that Anu described is being prioritized. If you think of what that means, it means some things like our cloud migration and other areas like that, that can skip a quarter if we need to, or taking a little bit of a back-burner and the priority is on making sure, again, we take care of our team and then we are maintaining velocity on the product road map side.

Okay. We're also asking companies broadly if they're seeing any impact in Eastern Europe more broadly. I know Badoo has exposure there as well.

Yes. The majority of the Eastern European impact -- actually, the entirety of it is in Badoo. What we are seeing is, of course, a big impact in Ukraine, big impact in Belarus. And because of the actions we're taking in those 2 countries, we're a pretty substantial impact. As you look at the neighboring countries, we are seeing what I can best describe as distraction. Distraction is not -- it's hard to sort of quantify it exactly, but it is just a slightly lower level of activity in those countries. Not something that we think is going to be a long-lived distraction. But just given the events in the world the last couple of weeks, it's understandable. The people in Poland, for example, would have other things on their mind than dating. We're seeing it pretty localized at the moment to the bordering countries and very much localized to the Badoo app. Even in Germany, for example, for Bumble, we don't see any real impact coming from the conflict.

Okay. Maybe a similar question on how we should think about payers, the impact from that and ARPU -- ARPPU over the course of the year. I think you also launched a 2-tier subscription model there as well. So how does that fit in?

Yes. So I mean if you think about Badoo, it's on a slightly different monetization journey than Bumble app has been. It is -- it has had a virtual goods, for example, economy on it for a long time. It has a lower percentage of subscription users than Bumble has on a percentage basis. And so as we think about what this means, obviously, because of the Russia-Ukraine situation, we are expecting that Badoo paying users will be impacted. I think we had mentioned on the call the impact on paying users is going to be higher than the impact on revenue. Just Russia is a lower people market. So I think we will see near-term impact to paying users for Badoo. I think where -- going back to your question on 2-tier, in the markets that we've launched 2-tier in, we are seeing good adoption. We are seeing improvements in our people. You can see that at a Badoo app ARPPU level, partly because the numbers are muddy because of FX and country mix and all of that. So the underlying numbers that we are seeing coming out of 2-tier for Badoo have been strong. I think we still have a little bit more work to do this year in terms of how do you ensure that in those markets, we get the pricing right. So we're still tweaking pricing for the -- both the tiers, just make sure we get it right. There's still a lot of testing that's going on with respect to that. Just to refresh everyone's memory, Badoo 2-tier was never expected to have a 75%, 80% adoption. It's a different pricing strategy. It is meant to be for people that pay a lot on Badoo today. So from an adoption perspective, we are not expecting us to be at those levels. But adoption in a lot of the countries has been pretty good, in line with what we've been thinking. So I think more to come on that this year, and we are optimistic that some of the macro conditions will abate and that will make the numbers better as well.

Okay. Great. I guess sticking on international for a moment. International expansion has been a key part of Bumble brand's growth and you talked about sort of launching in new markets as well this year. Maybe talk about where you are sort of in the road map of that expansion and what markets you're going forward to launching this year.

Sure. And Bumble has -- if you go back through our history, we really started in English-speaking markets in the U.S., in the U.K., Australia, Canada. And over the last several years, part of the growth that we've had that's moved us from the #7 to the #3 most downloaded dating app has been continued growth in those markets, but real push internationally into non-English-speaking markets. The biggest push, I would say, we started with India and then in Western Europe. We've had tremendous success in the German-speaking parts of Western Europe, Germany, Austria, Switzerland. Those markets are continuing to grow very, very strong, at a very strong rate for us. And we're taking the lessons that we've learned there and pushing into other parts of Western Europe, like France, Benelux, the Nordics, Spain, Italy. And so a large part of the international plan for this year is really focused on continuing to deepen our presence in both that DACH region as well as other parts of Western Europe. We've also completely organically, over the last 12 to 18 months, seen a lot of user adoption in Southeast Asia, India -- sorry, Indonesia, the Philippines. These are markets that actually just took off on their own for us. And we have been leaning in to make sure that we get the brand positioned correctly to make sure that the ecosystems, as we think of them, are healthy, equitable and we're continuing to lean in there, seeing very rapid user growth in Southeast Asia. And in Latin America, we have been -- we've had a presence in Mexico for a number of years. We're really -- we kind of paused on our Latin American expansion in 2021 because of COVID and because of the situations that we were seeing on vaccination rates and things like that. We have really started in the first half of this year, revisiting and increasing our investment on Bumble in Mexico and Brazil in particular. And I think what you'll see for us in the second half of the year is continued push in the countries I just mentioned, but also in other parts of Latin America.

Okay. Great. So of the 34% to 36% revenue guidance for Bumble brand for the year, help us think about how much is from these new international markets versus sort of the core markets that you're in today.

Yes. I mean we're not giving out specific percentages, but international growth is going to be a huge driver for us this year as it was in 2021. So we're very excited about launching in a lot of these markets that Tariq talked about. I think COVID, in some ways, did hamper our ability to get into markets where COVID was still a big factor. Some of these countries that he mentioned have lagged in terms of vaccination rates and booster rates and all of that. So I think '22 is going to be exciting as a lot of those markets sort of come out of that. And just even something as simple as getting on a plane and going to these markets is going to be so much more easier now than try to do marketing over the phone, right? So that's a huge factor for '22 as well.

And that's been the case in some of our core markets as well. Of course, Australia has had a fairly different situation than we've had here in terms of vaccination, lockdowns, et cetera. So our team is very agile and nimble. And I think we're prioritizing opportunities as we see COVID headwinds abate as well.

Okay. I guess how do you approach marketing when you enter some of these new markets? And ultimately, how should we think about marketing spend for the year because of that?

So -- I mean I'd like for marketing spend to be consistent with the amount of money we spent last year, partly because of all of the international expansion plans we talked about. If you take a step back, and we've said this before, our approach to marketing is very much from a brand perspective. We absolutely believe that our brand is our biggest moat. And most of our paying users come via organic means versus us paying our way through getting that next user. So that's very, very important and key to us. So even if you think about launching in a market like Germany, like we did last year, the way we do it is we take a very city-by-city approach to that. So it's not even Germany at a country level. You're talking about starting in Munich and Hamburg and going on from there. And we look for micro influencers in each of those markets, how do you feed the ecosystem, how do you get the brand name out to people in the ecosystem, and again, how do you ensure that the brand really resonates with the demographic that we are going after in each market, right? And even the notion of women making the first move can be slightly different in each market that we go into, and that's very, very key and critical for us. Because if we get that right, and then as the market starts to take off, then the virality really starts to kick in, and that's huge for us. So you'll see us continue to do that this year in many of the markets that we're launching in. And that's why we are leaning in from a marketing spend perspective. But the advantage we have there is, as we get the scale in a lot of these markets, we can dial back marketing spend because the leverage is just built into that, again, because the percentage of paid marketing spend that we have towards each line item is just lower. So we are committed to expanding margin in the long term. But I think from a marketing spend, we truly believe it's going to be a huge brand differentiator for us.

Okay. I wanted to talk a little bit about your first acquisition, Fruitz. Talk about what initially sort of attracted you to the business and what you think it sort of adds to the portfolio.

So for Fruitz, if you're not familiar with it, it's a rapidly growing app, targeting Gen Z consumers in Western Europe. They started in France. They've been expanding to other French-speaking countries over the last year or 2. And it really caught our attention a number of years ago just because of the approach that they're taking, which is really an almost whimsical and playful to this experience. It's very mission-aligned in that it encourages people to be honest and truthful and transparent about their dating intentions. And they do it through these Fruitz's metaphors that are you a peach or a cherry or things like that. And even that terminology is something that Gen Z individuals in France have really picked up and started talking about. So there's a lot of organic momentum behind Fruitz. And that's what we look for. We look for a passionate, just very talented founding team that wants to stay involved with the business and they want to continue to grow the business. We think we have that with Fruitz. We are a company that believes that you can approach growth in dating apps in 2 ways. One of them is to throw tons and tons of money at it and try and get traction. And The other is you can build the kind of organic flywheel. Really hard to do this, the second. Anyone who tries to just throw money at these, you can see download spikes, and we see this from time-to-time that you have these surges in demand for a dating app, and then there's no stickiness and it bleeds away. So we really look for those organic flywheels for the word of mouth to be there. And we saw that with Fruitz. Our team and friends kept calling us saying, "Hey, you should look at these Fruitz guys, it's kind of interesting." And then we got talking to the team, and we saw just this great acceleration capability. They've got, like I said, a wonderful founding team, a really strong point of view. 75% of their users are Gen Z, which is something you don't typically see in dating apps these days. But they don't have a terribly sophisticated matchmaking algorithm, right? They don't have a global technology infrastructure. They don't have the types of artificial intelligence that we have to apply to safety and chat moderation and things like that. So when you look at product market fit, we think they've done it, and we think we can accelerate them as they both upgrade and innovate their capabilities and as they expand globally.

Okay. How should investors think about your acquisition strategy going forward? If you were to make more acquisitions, would it be more smaller online dating companies? Would it be something outside of dating? How would you think about that?

I think the short answer is we don't see ourselves owning 15, 20 dating apps over time, right? We're really picky. All the criteria I just mentioned before are the types of things we look at. But we think that Bumble, Badoo, Fruitz, all have natural runway. We don't need to do acquisitions to keep growth going. And so it really is about is there an underserved community that we want to reach that we're not able to reach today and do we see someone who has got that product market fit that really is organic, right, that is leading to a level of organic growth. So we may end up doing 1 or 2 additional data app acquisitions. But again, I wouldn't expect to see us do dozens, right, of that. We do have an initiative we haven't talked about yet that we call Bumble BFF. And Bumble BFF is a really exciting opportunity for Bumble. About 15% of our users today use the BFF mode that we have. This is a friend-finding mode, not a romantic, but a platonic relationship discovery mechanism. And within BFF, we have been rapidly growing that product. We've seen the number -- the percentage of people using it go from 10% to 15% of users in the last 12 months. And we think that there may be some opportunities as we get into the BFF experience more to help accelerate and build that out. So that would be the other thing we look at.

Okay. Great. Want to pivot to App Store fees. So in the guidance you gave on Tuesday, you didn't include the potential $16 million impact from the Google Play workaround expiring on March 31. So give us sort of your assumptions around does it happen, does it not happen, and ultimately, how you're thinking about navigating the app.

Yes. I mean it's certainly the sort of hot topic these days. I think from everything we are hearing, Google is intending to go ahead with the plan on April 1. We are trying to stay nimble in terms of what happens in that area. We are ready to go if that had to happen. We did feel like last fall, they said the same thing and they sort of changed their mind at the last minute. So we're taking a little bit of a wait-and-see approach. We've built -- we've quantified the impact of that in our cost if that had to happen. And so we'll -- I guess, we'll just wait to see what happens end of March. There's obviously a ton of regulatory pressure, not just on Google, but overall for Apple, not just in the U.S., across the world. So I think we definitely feel like the entire ecosystem is sort of ripe for something to happen. Google having reduced their fees from 30% to 15% is obviously a good first step in that direction. We'll see what Apple does. If that has to happen, obviously, that will be a benefit to us and we would be very excited, but we're sort of taking a wait-and-see approach.

Okay. So I guess on that point, if we were to see lower app fees sort of across the entire ecosystem, how would you think about allocating those savings? Would you pass them back to consumers, invest in more marketing? What would sort of the plan be?

Yes. I mean, listen, I think we do spend a majority of our App Store fees, today, it goes to Apple given the amount of exposure Bumble has to iOS. So that would certainly be a decent amount of savings for us. I think we have lots of options, right? We can -- it makes -- our marketing is pretty efficient to begin with in terms of payback period. Obviously, this makes it even better. So you'll definitely see us leaning into markets where we think there is opportunity. There are other areas of investment. We could deploy the capital, too. And we could also let some of that flow to the bottom line. Again, we are committed to expanding margins. So I think we'll see what happens when it happens. And then we'll make decisions based on that.

Okay. Great. I guess turning back to Bumble BFF, a little bit in Bumble Bizz as well. Talk about sort of the monetization road map of those products. When is it possible that those actually contribute meaningfully to the top line?

Sure. So as I mentioned, we have the BFF. We also have this Bizz product that is really about finding business connections, mentorship opportunities, networking, that sort of thing. All of them live inside of the Bumble app today. And what we've learned as we grew the dating side of Bumble is that these are marketplace businesses. And in a pretty clear way, there are 2-sided marketplaces. And the problem with marketplace is always getting the scale and getting the engagement that you want to have. And so as we think about expanding BFF, as we think about expanding the nonromantic relationship side of our business, we're really primarily focused right now on how do we get to the scale that we need to, how do you get to the activity levels, how do we get the flywheel turning so that it really is this organic growth engine for the company. As we do that, we are -- we will be looking at how we monetize. There's a number of different opportunities, whether it's virtual goods and consumables, stickers and virtual gifting and things like that, whether it's advertising. And if you think particularly in a post-IDFA world, having interest communities, which is how we're thinking about the BFF world, having interest communities, the people are voluntarily associating with gives us a really strong opportunity, we think, to partner with advertisers. So we know there's an advertising opportunity. And we think there are some creator opportunities in there as well. So there's no shortage of ways we could monetize. What we want to do is make sure we get the scale, make sure we get the user engagement and then turn to that versus doing something premature that might stall the long-term growth potential of the business.

Maybe starting to wrap up. There's been a lot of discussion about metaverse, social discovery end of swiping. What's your take on that?

There's a lot of talk. And I think everyone has got a slightly different definition of what it all means. I don't want to say that we're not paying attention to it. Of course, we -- our technologists, we are looking at everything that's going on in the world. There are some parts of it that we're excited about in the near term, largely around more Web 3.0 blockchain types of technologies. Just because of the increase in trust and the increase in kind of ownership and participation, we think that those can create. Particularly as we think about BFF, we are -- the next generation of BFF being around communities, we think is a very natural fit for the Web 3.0 world and what's evolving there. So we think that in the near term, there's opportunity there. And again, our engineering team is just dying to get their hands on this and start innovating. So very excited there. Will people be meeting in virtual restaurants and virtual bars with their avatars? Maybe probably. We're going to keep an eye on it, but it's not a massive area of -- actually not. It's not an area of investment for us right now. We're keeping our eye on it more than anything.

Okay. Maybe last question, 2-parter for each of you. What are you most excited about into 2022? And what do you think is the most underappreciated aspect of the story by investors?

I let you start...

No, I mean I think the thing that I'm most excited about is just taking the Bumble mission that we have, which is an extremely powerful mission, to every part of the globe and to take it to countries that desperately need it, right? I think as a woman myself, that is -- that was a huge driver of why I joined Bumble, and that continues to be a huge sort of catalyst for change that we believe the world of online dating needs. So that personally for me is what I'm most excited about. And I think the most underappreciated part of our story is the same thing, right, which is the power that the mission has is truly something that is needed across the world. And I think we have proven over the course of the last year that, that mission resonates across the world. And our goal is to continue to do that all throughout next year and onwards.

So it's a similar answer. I guess the level of growth that we're seeing really around the world is, in my mind, an extraordinary real testament to the execution of the team. And there's a number of aspects to it that I think the world really needs right now. One of the big areas of emphasis we have is around trust and safety. And it's really core. We don't have -- we have a safety team, but the safety team is not the people responsible for safety. We have everyone responsible for safety. We have everyone responsible for trust. And it's part of our product launch process that's part of how we think about design. And I think the world needs more of that right now. There's a lot of toxicity out there. There's a lot of way -- of abuse going on online. And we take a very strong stance in Bumble against abuse, against harassment, against all of these sorts of toxic behaviors. And are we perfect? I'm sure we're not. But we really do lean into that, and we think it's a big growth driver for the business. I think the probably most underappreciated part of the story is just how much room there is for growth on Bumble. If you look at the dating app world in particular, people have multiple dating apps on their phone. It's not a 0 sum game. And in that world, Bumble has moved from the #7 to the #3 most downloaded dating app in the world and continuing to grow very, very rapidly in that setting. And we're taking share away from the largest players in the market and pretty much every market we get into. And I think we're still in the early days. When we talk about Germany as being a success story, it's not like it's plateaued. It's still on a very fast growth path for us. And so we think there's a lot of headroom on Bumble, on Badoo and on Fruitz as well.

Excellent. Thank you both so much for joining us today.

Thank you.

Thank you.

Thank you for coming.

Thanks for having us.

Thank you.