buzz (NASDAQ:BMBL) recently had its IPO and just in time as the market has been generally uneasy in recent weeks. While the rest of the tech industry saw a sell off, Bumble was able to price its stock above its target range. raise $ 2.2 billion In the process. Those lucky enough to catch Bumble stock saw their holdings appreciate 63.5%.
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Since then, the stock appears to consolidate in a sideways move between the $ 65 to $ 75 price point. As a general rule, after a new IPO, it is prudent to wait for the price to stabilize a bit before launching.
I think the same can be said for Bumble stock. This is doubly true in the context of the broader weakness in tech stocks.
However, the company itself is in such a strong market position that shares of BMBL could be an attractive proposition for long-term investors. The stock can be volatile, but the underlying activity is as strong as it gets.
Bumble is a dominant player in the industry
A key long-term winning strategy is to buy companies that have a sustainable competitive advantage. Companies with a strong competitive advantage are able to withstand all the challenges of new entrants. This ensures a dominant position in the market for a long time. In the age of social media, one of the most powerful competitive advantages a business can have is the “network effect”.
According to at Investopedia, “The network effect is a phenomenon whereby an increased number of people or participants improves the value of a good or service”. This effect is particularly strong for social media companies. For example, think about how you probably use Facebook (NASDAQ:FB) or Instagram because all your friends are on this platform.
Network effects make it very difficult for a new participant to enter the space because there are already dominant players occupying specific niches. Bumble is a company that takes advantage of these “network effects”.
In fact, the company is one of the two dominant players in the entire online dating industry. This is the other big competitor being Match group (NASDAQ:MTCH). The company owns the second most popular dating app (Bumble) in the American namesake. It also has the the most popular Badoo.com world online dating site.
In the online dating space, Bumble is one of the most entrenched companies. I see him maintaining his leadership position for years to come.
Bumble’s app is one step ahead of its competition
The “Bumble” application is particularly aimed at women and places a strong emphasis on respect and equality. To do this, women initiate contact with men. This, ideally, reduces unwanted and too aggressive attention. Men much more numerous women in online dating applications, resulting in a lot of dissatisfaction for both genders. Bumble has an advantage over its rivals in this regard as it has a more balanced user mix.
By focusing on creating an image of a safe and inclusive community, Bumble has succeeded in attracting higher paying clients. According to the research firm Price intelligently, the willingness to pay of a median Bumble user is 37% more than Tinder users at $ 16.09 compared to $ 11.67 for the latter.
This tells me that Bumble creates a more “premium” experience. In the long run, it may start to gain more market share from this desirable demographic. Being considered the most premium app is a huge plus for Bumble going forward.
Online dating has become a common and increasingly accepted way to meet your partner. Roughly 39% of all heterosexual couples in the United States met online. The global online dating market as a whole is expected to reach $ 3.6 billion by 2025 with a CAGR of 8.26%. Bumble has a chance to capture a disproportionately larger share of that growth.
Indeed, despite the coronavirus pandemic, in 2020, the total number of paid users increased 22.2% to 2.5 million.
Takeaway for investors: buy a small position in Bumble Stock
It’s clear that Bumble’s dating app is here to stay. The company’s marketing position fits perfectly into current social trends. This will ensure healthy user growth in the long run. In addition, by developing this safer space, Bumble is able to increase the overall willingness to pay. If the company can continue to better monetize its user base, its valuation will only grow from there.
Bumble shares may seem a bit pricey, as the company is trading at around 15.5 times sales. However, if the number of paid users continues to increase, the title should reward long-term investors.
At the time of publication, Joseph Nograles had (directly or indirectly) no position on the titles mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.