Bumble Inc. (BMBL) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. I'm Lauren Schenk, Morgan Stanley's small and mid-cap Internet analyst. And I'm thrilled to be joined this afternoon by Whitney Wolfe Herd, Bumble's Founder and CEO; and Anu Subramanian, Bumble's CFO. Thank you both for being here. Before we begin, a few housekeeping items on my end. Please note that all important disclosures, including personal holding disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com\researchdisclosures or at the registration desk. And from the Bumble's side, 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. Description 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 February 21, 2023, and our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2022, and our subsequent periodic filings. All right.

So with that out of the way, Whitney, this is the first time I think we've had you physically here at our conference. So maybe let's take a step back and talk about what inspired you to create Bumble and how the business has evolved since then.

Yes. Well, thank you for having us. We're very excited. Bumble essentially was born out of a couple of problems I experienced and witnessed in being a young woman who had just graduated a different college and watching a lot of young women around me date. And then also the surge of living online, right? So I think the 2 things I realized was dating was not thinking about women, was not focused on women, designing for women or empowering women. It was very much a world where it was all about men, and it was all about them having all the control. The second thing was the Internet was super toxic, rooted in a lot of bad behavior, a lot of abuse, a lot of just really toxic behaviors. But the one thing that was so true is people wanted to date, including women. We all wanted to date. So I was really inspired to start a more positive, safe, kind, welcoming ecosystem platform brands. And Bumble would be a product rooted in better behavior, safety by design and women first. And so that came to life in the form of women always going first on this dating product. So the big vision was to always build a relationship brand, not romantic necessarily, one that would have extensibility into friendship, into business connections and be this entire ecosystem of just positivity and kind connection. So we started with dating, and our dating apps have performed very well. And then in 2016, we launched Bumble BFF for friends finding, and that continues to progressed really nicely. We actually ended up when Blackstone took stake in 2019, merging all of our brands really together. And now we're Bumble Inc. with kind of this overarching theme of kind connections. We went public in 2021, and we are now comprised of Bumble apps, Badoo and Fruitz, and we're really excited to be here

Great. Great overview. Maybe let's start by touching on macro. Obviously, we've seen a lot of consumer spending variability. Maybe talk how macro has impacted the business last year, quarter-to-date, renewal rate, a la carte, everything.

Yes. So I'll speak high level at macro. And Anu, please chime in where you'd like to. In late summer, we saw some impact to renewals. But since then, it stabilized with no further decline and no further issue there. I think macro demand is still very much there. And I think stepping back for a second, what I feel investors don't fully have enough FaceTime with us to fully appreciate, the demand for love and the demand for friendship and the demand for connection, it is so resilient even in extremely tough times. This is very different than an entertainment app or a content app. This is something that's helping you actually find relationships. So we're really proud of the resiliency of the space, of our brands. As we look at the macro environment, I know a lot of people have had inflation on their minds and the cost of living on their minds. One thing that's really unique for us is the relative value of using our products versus the cost of dating off-line. So if you go to any bar around us right now, it's very expensive to buy a round of drinks. And if you're doing this to meet people and go out and just hope that, that perfect someone happens to be in the bar, that's going to add up really quickly. So the relative value of our boost level or a premium subscription level is actually quite extraordinary for the scale of the folks that you have the opportunity to connect with and the safety, right? You have photo verification. You have all these blocking report tools. And we really fundamentally believe that this is super resilient in an environment where people might be counting their spend a little more closely.

Okay. Great. Bumble app growth in 2022 was driven by very strong paying user net adds throughout. How are you thinking about paying users in '23 in terms of key drivers and also pacing through the year?

Yes, sure. So like you said, we had strong net adds in 2022. We said on our last earnings call that we expect for Bumble app to be between 450,000 to 500,000 net adds for the year. So we feel pretty good about where we think we will land up by the end of the year. In terms of Q1, we expect to be around 90,000 to 95,000 net adds, and then we expect that Q2 will be higher than that. Q3 will be higher. And in Q4 seasonally is a lower quarter, so we expect that net adds for Q4 will be lower than what you see in Q3. So it's a pretty similar cadence to what we saw last year. A lot of it is really driven by the strong product road map that we have. It's also heavily driven by growth in overall top of the funnel, right? The growth in users, both in existing markets as well as the newer markets. And it's also heavily driven by the -- always on payer optimization efforts that we have. And this is the stuff that is not obvious when you see it on the surface, but it's the stuff that really moves the needle for us in terms of driving payer conversion. And it's something that our teams have been really good at doing historically, and it's definitely something you'll see us do this year as well.

Great. Maybe the other component of revenue, ARPPU. Bumble apps ARPPU was leading in the industry at close to $30. What do you think the ceiling is for that metric? And is it possible that it comes down over time if you are successful in lower monetizing regions?

Yes. So I'll just start by saying we really think about monetization in the form of a barbell, if you will. So there are some folks out there, say, college students, for example, who don't have a propensity to pay $40 a month. But we do have a premium audience, slightly more mature in their relationship journey who would be willing to pay a lot more than $40 a month. So when you start to think about the long-term opportunity for really extending that barbell on both sides, it becomes a really interesting opportunity for the future. In the near term, we are -- as we've said in our earnings call, we are working on bundling some more Gen Z-relevant product features. So we're working on a lower tier bundle subscription offering that will let Gen Z really express themselves and connect with each other in really kind of Gen Z friendly ways that will be offered at a lower price point. Also, when you think about this mix shift in blend internationally as you go into different markets with these different offerings that does create a slight shift, but we also think that there's a long-term opportunity to really build out both arms of that barbell.

Great. International expansion has obviously been a key pillar of the app story as well. Can you talk about the time line it takes between when you first launch in a market until when you turn on monetization? And based on that time line, what regions are you expecting to contribute the most this year from a revenue perspective?

Yes. So before Anu jumps into international monetization, I think something that's very unique to us and our story and our brand is that it really resonates globally. This unique offering, this unique proposition of safety by design, women first, even my own authentic story in this, it's a huge catalyst for us. It's a huge driver for us. So what we're really proud of is our playbook has been really consistent. You can walk into a Bumble party in Sydney, Australia or in Munich or quite literally any of these markets we've been to, and you can feel the brand. That's something that's so unique to us. And we're really good at localizing as well. I really credit this to Badoo and the team there because they're such a global brand, and they have been for over a decade. Our localization team is just top of the line. And so we have this really unique opportunity to both localize the product, but also the strategy in which we enter our market. So we don't change the narrative. We don't change the focus. What we do is we just tweak things to be really relevant with each market. So as far as our playbook, we're really proud of the global resonance that it has.

And in terms of contribution, I think you'll see that within the international markets, Western Europe will be a nice contributor for us this year. We obviously have talked about Germany in the past. We want to ramp up payer a conversion in Germany now that we have a sizable MAU base there. Other markets in Western Europe, we also expect will be a healthy contributor to overall revenue. We've called out India in the past. It's a good market for us. And then from a new market perspective, we want to be more aggressive in parts of Southeast Asia, parts of LatAm. There are some markets where we've entered into in the past years, so we want to ramp those up as well. So it's a pretty balanced strategy in terms of how we are thinking about where revenue growth comes from.

Okay. It's been a few months since you rolled globally out the new Compliments feature. What has been the early user reaction to that product? What's the plan to monetize that? Are you thinking ala carte future part of subscription? What are sort of the plans there?

So we're really excited about Compliments. For those of you that are not familiar with the feature, it's our first step in the message-before-match space. It's the pre-match kind of engagement opportunity. And so the way it works, you kind of think about it as a super swipe with context. So the context in this case, is a compliment. And again, this comes back to the founding initiative of a kinder, safer space, engineering positivity not toxicity. It's been really resonant so far. We're excited. It has a very high conversion rate. And it is really powerful when you think about the barriers that it breaks through in terms of weighting. And so we have rolled this out now, and we are now finally at the stage where we're ready to start putting marketing behind it. So you can imagine Compliments, not pick-up lines. This is like such a Bumble-branded moment. And from a revenue standpoint, we are definitely excited about the contribution that this is already providing. And we've baked this into our guide, and we're excited to also explore the further acceleration of these type of pro-social prematch opportunities, which we think is a huge unlock.

Great. And just a follow-up for Anu. How should we think about the contribution from Compliments to the core for '23?

Yes. So right now, I would say Complinents is largely -- and our people play, most of the people that are paying for Compliments, are either existing subscribers or our payers in some form. Like Whitney was saying, we expect revenue from Compliments to ramp through the course of the year. Part of this is going to be as showcasing Compliments to new payers, people that have never been part of our paying ecosystem. So obviously, at that point, Compliments will become a payer driver. So we are very pleased with what we've seen so far. And hopefully, we'll have more to share as the year goes by.

Okay. So in addition to Compliments, you've talked about several other new features that you're launching this year, new women's focused offering, Best Bees, Beeline matching. Or if you had to choose, kind of like choosing a favorite child, are there 1 or 2 that you're particularly excited about?

I'm so -- just to set the stage, I've been waiting for this year because we've spent the last couple of years really optimizing under the hood and doing tons of really critical investing into the underpinnings of the business or our recommendations engine, further accelerating machine learning and AI and really these key drivers of what will be foundational to all of our product offerings. So this is an exciting year because we finally get to roll out and launch a lot of these innovative products that we've been kind of exploring for a while. So if I had to pick one -- okay, I will go with one. But before we pick, I think it's really important to say that at Bumble, everything we do is women by design, women enjoy by design, safety by design and kindness by design. So this is something I'm really proud of with our team, and this is not a side focus for us. This is not like a team over here that has to figure out how to make things safer. So that's something that really is just the underpinnings of everything we do and will continue to do. I think in the immediate term, I'm really excited about Best Bees for a few reasons. I can't tell you how many people have directly asked me, how do I get the secret algorithm of the best people. Like this is like the first question I get when I meet someone. We get flooded with this request internally. And so finally, with our super-sophisticated technology, machine learning, AI and our matching recommendation engine, we will finally be able to deliver every single person the Best Bees. We got a sound brand here for them. And so this will be a paid opportunity to have this kind of step into the more curated. And I will say like with scale, which is great, you lose some of that special curation. And so this will really kind of bring that back and bring back that magical feeling like, wow, this person is perfect for me. I'm so glad that they recommended this person. So I think Best Bees is not the end game, it's just the beginning of a more curated offering at the company.

Great. You teed up my next question perfectly, which is a common theme of the conference is, obviously, AI. Maybe we talk about how machine learning AI is going into business already today and where you think they're most -- the greatest opportunity is over the next few years from now.

Yes. So we've been obsessed with AI for a long time, very much a believer in the acceleration it can have on our business. We already lean into AI, machine learning is rooted into our safety measures already, our recommendation engine. But what I'm really excited about with AI, and have been for quite some time, is dating can be daunting. Getting out there and expressing yourself can be confusing, which picture is best. I don't know about this, I do my bios the right way. Is this going to resonate? So not only putting yourself out there is daunting. But we think AI, through a thoughtful, consumer-friendly tool, can really help you show your best self, but then it can really help you not only match with the best people for you, but actually help you through thoughtful way, figure out how to express yourself the best way once you have match. Of course, further leaning into safety and trust and leveraging AI further to detect any bad actors and actually detect it before it happens based on certain triggers. So very, very excited about the opportunity for a deeper integration of AI as we go on.

Great. Maybe let's shift to margins for a moment. You've guided to about 100 basis points of margin expansion for the full year. 1Q will delever about 50 basis points to start. So maybe talk through what the drivers of the acceleration are through the course of the year. How we should think about the cadence of that, And which expense lines do you expect to see leverage on?

Yes. So we as we said on our call, we are definitely committed to at least 100 basis points of margin expansion this year. Q1 seasonally does tend to be a lower quarter for us. It was similar in 2022 as well. We do spend to -- we do tend to spend more on marketing in the first half of the year. Q1 is strong, leading to Valentine's Day and then Q2 we spend leading up to the summer. And you should definitely start to see leverage on the sales and marketing line as we go through the rest of the year. Overall, on a full year basis, sales and marketing is an area we expect to see leverage. We, in Q1, also expect to see our cost of revenue go up a little bit. Again, if you remember, we adopted Google Play halfway through last year. So we are starting to lap that fully. So we'll annualize the impact of that. And then as the year goes by, we want to be very thoughtful in terms of where we are investing money in. We've said this before, the bar for investment in things like headcount is very high. To Whitney's earlier point, we definitely want to be investing in AI, machine learning, data engineering pockets of our business that we know will be ROI-positive in the years to come, not just in the next year. So those areas will definitely have investment. But overall, I think we want to be super disciplined, especially in this macro environment and making sure that we continue to be very, very efficient with respect to what our business does this year.

Okay. Maybe digging in on marketing for a second. It's -- excluding SBC, it's a little between 26%, 29% of revenue. As you think about 2 of your largest peers investing more in marketing this year, how are you thinking about marketing spend through in 2023, particularly in the U.S.?

So maybe I'll just start. I think something that has been really amazing for us is that from day 1, we've taken a very homegrown organic marketing approach, so where spend is not out of control. We have a super, super organic, very creative micro strategy. So having the best influencers on our college campuses at scale and really doing a lot of these things that have been so native and core to Bumble. The beauty of this super strategic, very creative, very off-the-wall marketing is it doesn't necessarily have to be really cost-heavy. This is not huge out-of-home campaigns necessarily. It's more of like being in the local neighborhood. And so I'll let Anu speak to particulars, but we're doubling down on the things that we feel are unique to us. We really believe anyone can get a subway campaign, right? Every brand in the world does this, but not every brand can do the approaches that we've leaned into. And so I think further leaning into those and just doubling down on that moat is definitely part of our strategy and telling our story more prominently. And when we tell our story, it results in success. And so really just getting in front of that and using our own tools that are unique to us is a big part of 2023.

Yes. And I think from a spend perspective, it sort of follows what Whitney just said, right, which is we are focused on what we are focused on, right? And we've always been very disciplined. Our teams have the right ROI targets for whatever markets they are operating in, and that's how we've built up our plans for the year. So nothing has really changed for us in terms of what we intend to do it and the threshold for what return looks like for the spend that we have. So we feel pretty good about where our business is shaping up for the year. And obviously, we watch the market closely. We watch what's happening with competition closely. And to the extent we need to make changes, we always do that. But again, we do that with revenue and focus and with a return in focus as well.

Over the medium to long term, where would you expect marketing as a percentage of sales to sort of level out?

It's hard to call where that number eventually lands. I think it's definitely an area where we have deliberately invested in primarily for investment from a brand perspective. It is also an area, and we've said this before, where we definitely expect to see leverage in the medium term, especially as we start to work towards our margin expansion goals. So we feel pretty comfortable about the spend that we have right now, but we also tend to be nimble about how we make changes, right? So to give you an example. Last year when we saw Badoo and what happened to Badoo with respect to the war in Ukraine, we pulled back a lot of the brand spend that we were originally spending because we just didn't see the return on that, right? So we are always very disciplined and have been about how we make these decisions, and you'll see us continue to do that.

Okay. Whitney, you've done a lot of work on revamping BFF into its own stand-alone product. What does the road map for BFF looks like in '23? And when should we start expecting that to really monetize?

So currently, BFF is not a stand-alone product. It is still very much part of the Bumble app experience. And the strength of the product is actually pretty remarkable considering it's quite difficult to find in the product. So it's pretty sensational to see how many people have gone to the quest of finding it because that's how bad they want to meet a great group of friends. We are really excited about our plans for BFF. We have a great leader at the head of it. We are really focused in the near term on making the product extremely Gen Z-friendly and really focused on that young kind of college/post-college-aged women. This is a product that is growing really organically. It was up 26% in our last earnings call, the number we disclosed. We did disclose another number in the past, which we've not updated, which was 15% of the dating audience on Bumble app is actually already using BFF. So you can see the overlap and the resonance there. So the plans in the near term are really optimizing the product strategy, which we're really excited about. And finally putting marketing. We've never marketed this product really outside of a few small initiatives. So really excited about also that kind of kickback effect to the brand. This is a brand halo, right? Getting someone to use a product who's in a relationship, but it's a derivative of Bumble. It's something nobody else in our space has ever been able to do, and so we're really excited about that. And then monetization. Another thing we do at Bumble is monetization by design. So we don't build a feature and then like 6 months later wonder how to monetize it. We have monetization in mind from the onset like safety, like the happiness and joy of women. It doesn't mean we turn on monetization day 1. So for context, when we were setting up Bundle in 2014 and wire-framing it, we did not want to monetize right away. We wanted to build up a core audience, a user base, and then be able to turn all these levers on. So the monetization was already pretty well established in our minds, and then it took us 2 years to actually turn it on. So with BFF, I'm not saying it's 2 years, I'm not committing to a time line. But we are pretty clear on how we would bake in monetization journey. And for the near term, it's just really all about customer satisfaction and accelerating the growth rate.

Great. Maybe let's switch gears a little bit to capital allocation. It's obviously highly cash-generative, asset-light business model. You have about $400 million of cash on the balance sheet. How are you thinking about deploying that capital?

I say it's a good problem to have. I feel like we're in a good position. We have a healthy cash balance sheet, like you said. We have low leverage from -- on a net leverage basis. Our focus right now is really on reinvesting in our business. We still have a ton of organic growth that we can go capture, right? So we are very heavily focused from a capital allocation perspective on that. We've also publicly, historically talked about M&A as an option for us. We want to be selective about how we think about M&A. But we definitely are talking to people to see if there's anything that is exciting and interesting for us. And then investing in products like BFF, right, I think, is the other focus in terms of how do we continue to build our brand beyond dating. I think those are the areas of investment that we are thinking about. Obviously, keeping a very close eye on what's happening with the broader macro environment and looking at what's happening with interest rates, things like that, right? So we're having many discussions at internally and at the Board level in terms of what all of that means, but we feel pretty good about where we are from a balance sheet perspective.

Okay. Maybe for Whitney, you've made one acquisition since going public, which was Fruitz. Going forward, do you think Bumble remains more of a branded house? Or is there a possibility becomes more of a house of brands?

So definitely more on the branded house side. We're not interested in just amassing a bunch of dating apps. Why did we buy Fruitz? We bought Fruitz because we've looked at over 90 dating businesses, and the majority of them are inorganic growth. So they're propped up on spend, and they're not really network-effect businesses. Fruitz was very organic. It was in the Zeitgeist. Gen Z loves this product in France, and there is definitely one of the most talented teams I've met in the space running that. So that was a really interesting brand for us to acquire because of the unique engagement model and the resonance and the strength of the organic brand. But as we go forward, I think we're really just very excited about all of the opportunities within this brand that we already have. The way we've landed platonic friendships with a dating app essentially is pretty remarkable in our opinion, and so we're excited about that. I personally have never been more excited about where we're at. I think this is a really special business with a really strong mission and incredible team and a customer that really likes what we're offering. And so we're very excited for 2023.

Great. It's a great place to wrap up. Thank you so much, both for joining us. And thank you, everyone, for coming today.

Thank you.

Thank you so much.