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Heard on the Street Blog

The Rise of Bumble?

In November 2019, I read a paper on the dating market written by a hedge fund I admire, Tyro Partners. Although he does not know I exist, I have long been a fan of #FinTwit legend Dan McMurtrie and his firm. (Noticing a strange parallel between my relationships with hedge fund managers and my dating life.) With the recent IPO of Bumble, and the subsequent shift of dating apps back into the forefront of the business news cycle, now seems like as good a time as any to share some thoughts on the dating app space. My goal in this post is not to determine whether or not Bumble ($BMBL) is an attractive investment opportunity, but rather to spark some conversations and beg a few questions about an industry potentially on the cusp of significant expansion.

As of 2017, online dating produced over 40% of new relationships, passing “Met through friends” as the leading catalyst. This growth has been buoyed by a fundamental shift in the “power structure” of market participants. To put it simply, in a world led by online dating, the temporal costs of searching for potential partners have been reduced to essentially zero. This is in contrast to a world before dating apps, where getting a date apparently required the grueling task of going out in public and spending invaluable hours surrounded by other human beings. Now, genuine human connection can be achieved from the comfort of your couch, only a few swipes away.

The main beneficiaries of this shift have been women, who were traditionally the risk-takers of the dating space (and still somewhat are.) Rather than risk physical safety by meeting up with someone new, a much larger pool of “applicants” is available for preemptive vetting without leaving the living room. Additionally, meeting someone through existing friends or social circles leaves one open to adverse reactions (awkwardness, strained friendships) if things don’t work out. With dating apps, you can instantly break off a connection with someone while suffering little to no actual consequences. My sister tells me this is called “ghosting.”

Another benefit of this new shift is the reduced pressure to “settle.” With unlimited potential relationships in the palm of your hand, there is no reason to stick it out with someone that doesn’t have that special spark. This leads to a larger number of short term relationships, an increase in the average age of marriage, as well as people having higher standards for that hopefully lifelong commitment. This is somewhat shown in the gradually declining divorce rate. The more relationship experience you have, the greater your ability to screen someone for red flags, and the less likely you are to hitch your wagon to someone that doesn’t pan out as intended.

OkCupid has provided us with some thought-provoking visualizations on the ways that men rate women, and vice versa.

The Tyro Partners paper makes the point that “If we assume OkCupid’s data is roughly representative of naïve preferences, and that incentives to “settle” are lower due to decreased market frictions, we would expect women in a given cohort would net choose to opt in to dating or sex at a lower rate. This appears to be exactly what is happening.”

Funny story actually, while the following chart illustrating the previous point is included in the Tyro Partners paper from 2019, it has also been floating around viral Twitter this past month, often in easily digestible meme format, captioned with something along the lines of, “Hmm… I wonder when Fortnite was released?”

In this contemporary dating environment with women in the driver’s seat, Bumble may be in the best position to monetize this trend. Bumble is centered around providing women with the optimal online platform for finding romantic relationships, as well as platonic and business connections through Bumble BFF and Bumble Bizz respectively. Based on the increasing selectivity of women, men are becoming progressively more likely to take extra steps (i.e. spend money) to improve the way they are perceived by the eyes of potential partners. This manifests itself in the purchase of paid subscriptions and premium features.

While “organic” interactions at bars and restaurants may be traditionally viewed as a competitor to dating apps, the reality is, getting together in person is usually the next step following a successful connection made through Bumble or another site. When COVID-19 locked down the country, people were deprived of the option to go out and get together in person, effectively eliminating the possibility of forming that next-level relationship, and making meeting new people at all seem like a burdensome undertaking. (Depressing I know.)

However, with the country gradually reopening, vaccinations ramping up, and the social warmth of summer almost upon us, there are those (myself included) that have internal “pent-up demand” to get out and see people. A Roaring Twenties-esque summer may be upon us, and Bumble is in a position to thrive as a medium of human connection.

The discourse around Bumble’s competitive position is an interesting one. On one hand, they have already built up a powerful network effect, with over 1.2 million paying users as of Q4 2020. What makes a dating app successful, or really any social media service, is both the quality and quantity of the people on the platform. Like most network effects, this compounds over time. The success of existing users draws new users to the platform, which in turn experience their own success, attracting even more new users. The cycle continues.

The counterpoint to this is somewhat simple. There really is no financial or logistical hurdle keeping customers from jumping ship if they should so choose. In the “Risk Factors” section of Bumble’s recent 10-K, they state, “…costs for consumers to switch between products are low, and consumers have a propensity to try new approaches to connecting with people and to use multiple dating products at the same time.” Even with users on average employing multiple dating apps simultaneously, if a superior service were to emerge, it would cost a Bumble customer next to nothing, as well as only take them a few seconds, to delete Bumble and download the new service. A bet on Bumble is a bet that they will be able to consistently innovate and adapt to an ever-changing market.

So far, that bet has paid off. The CEO, Whitney Wolfe Herd, is an inspiring story. The youngest woman to ever take a U.S. company public, she described Bumble to TIME magazine as “Facebook, but for people who don’t know each other yet.” Whitney has been able to build up Bumble as both a successful dating app and a lifestyle brand, transforming her corner of the internet into a welcoming space to build healthy relationships. Instead of butchering the rest of her story myself, I will just provide a link below to the full TIME magazine piece, and would recommend it as morning coffee reading if this post was interesting to you.

Only time will tell how the dating app space will fare over the next few months, but I have a feeling this will not be the last we hear of Bumble.

Written by: Jacob Srinivasan

March 29, 2021