Bumble surges as JPMorgan upgrades shares on AI-powered revamp
It's been no secret that the dating app industry has been struggling to attract new users while also having trouble retaining current subscribers who are increasingly ditching the apps over burnout with swiping to try and find a match.
One of the main issues facing the industry has been a generational disconnect, as Gen Z has shown a greater disinterest in using dating apps as widely as previous generations like millennials have used them.
“The biggest single factor that’s plaguing these companies is a generational transition between millennials and Gen Z,” Raymond James analyst Andrew Marok told Yahoo Finance.
“Since these apps were largely built by millennials for millennials, navigating this switch to Gen Z preferences has proven quite tricky.”
By last year, Bumble Inc. (BMBL) and Match Group, Inc. (MTCH) had shed a combined $40 billion in market cap since 2021.
Bumble in particular has suffered years of losses and seen its stock plunge nearly 95% since going public five years ago.
These struggles led founder Whitney Wolfe to return as chief executive last year, about 18 months after stepping down from the role, in order to try and revitalize the company she started.
One of her first moves after returning to CEO was to layoff 30% of the staff, or about 240 employees.
And now Bumble's fourth quarter earnings on Wednesday offered investors some hope that Wolfe might be righting the ship.
The company reported Q4 revenue of $224.2 million, above the consensus estimate of $221.3 million. The average revenue per paying user rose 7.9% to $22.20.
BMBL shares surged on Thursday more than 34% on the earnings beat.
Central to Herd's turnaround strategy is the upcoming launch of Bumble 2.0, which will incorporate artificial intelligence that will enhance quick photo swipes and also add short scrollable chapters to a profile that detail a user's interests, personality and lifestyle.
Herd has also indicated that Bumble will also experiment with a "no-swipe" model for its app in certain markets.
In his interview with Yahoo Finance, Raymond James's Marok noted that Gen Z and millennials have “antithetical preferences” in how they approach dating, and the swipe-heavy model popularized by Tinder and Bumble may no longer resonate with younger users.
JPMorgan analysts, led by Cory Carpenter, upgraded Bumble to Neutral from Underweight in a note sent to clients on Thursday, citing the pending launch of Bumble 2.0 as a potential catalyst.
"Bumble worked through its shrink to grow phase quicker than we expected, with the focus now shifting to product innovation where the 2H roadmap includes an AI dating assistant (Bee) and chapter-based profiles (deemphasizing the swipe)," Carpenter said. "Bumble still has a long road ahead to get to sustainable revenue growth, but we no longer think an Underweight rating is appropriate with leading indicators stabilizing."
However, Jeffries analysts noted that the dating app industry has had "multiple false starts" as they try to jumpstart their businesses, so they're approaching Bumble's AI revamp with caution.
"While early signs of stabilization are encouraging, we need to see a more sustained improvement to turn constructive," the firm said.