The stock of dating app Bumble (NASDAQ:BMBL) seems to be in rally mode, having sold off earlier in the year after a high profile IPO. While the company has been making headlines this week as it is one of the first tech stocks to stand down its staff for a week to rest them after the lockdown frenzy, its share price has been rallying.
Turnaround price action from Bumble stock
Bumble shares had been trending down from the start of the year. We like momentum stocks with an established and predictable pattern, and Bumble was shaping up to be a short trade, but then the price flattened out and has been moving up since mid-May. It is raising questions as to whether this stock might be turning around now.
Bumble is an interesting stock as it is relatively new to the market having only listed earlier this year. Since the IPO, the price has been heading south, although you often seen this with newly listed stocks as pre-IPO money starts to exit and take profits. Bumble was not trading during the pandemic last year, so it is difficult to evaluate against the on again, off again news of lockdowns, and how that might affect the dynamics of the dating scene.
There was a lot of demand for Bumble stock when it listed on NASDAQ at $43, which was above its target range of $37-39. Its CEO Whitney Wolfe Heard was only 31, making her the youngest female CEO to take a company public in the US. The stock price jumped almost immediately from $43 to $77, which was an excellent start, but it was unable to sustain that. One could argue that the more realistic value was indeed in the mid-40s at that point.
Bumble is a classic freemium app, allowing people to hook up for free, but with added extras they need to pay for. Bumble Boost, for example, which starts at $12.99 a week, makes a user’s profile more prominent.
In Bumble’s S-1 filing, the company said it generated $376m in revenue in the first nine months of 2020, with a net loss of $84.1m. Its main competitor is Match Group, the owner of other established dating apps like Tinder and Hinge.
Buy the dip opportunity for Bumble?
There does look as if there is a buy the dip opportunity here for Bumble shares, as it was looking toppy when it hit the market. When the company was priced at $43 and traded at $77 in hours, it does look like more an supply/demand imbalance than a fundamental story. Bumble stock was really only going to go one way at that price.
What seems to be happening now is that Bumble is looking more attractive in terms of pricing for investors who are getting in at a more realistic valuation point.
Analysts on Wall Street seem to be having difficulty getting their heads around Bumble: Stifel is maintaining a buy rating, but lowered the price target from $78 to $66. Morgan Stanley has an equal weighting with a $57 target price. Goldman Sachs is neutral and looking at $47. Bumble closed at $54.41 last night (22 June).
We think there might be some legs on this one and are adding it to our short term tactical trading list with a maximum 10% downside sell target of $48.97. With the core US market opening up this summer, we expect scope for some better performance from Bumble going forwards. as there will simply be more demand for dating apps across the board.
