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Bumble: Dating apps seeing ‘some upside limit’ to user growth, analyst explains

Citi Director of Internet Equity Research Ygal Arounian joins Yahoo Finance Live to analyze Bumble's position in the online dating space and how the dating app and competitors — like the Match Group — may be experiencing slowing user growth.

Video transcript

SEANA SMITH: Citi is bullish on Bumble. The banking giant initiating coverage on the stock with a buy rating and a $24 price target. Joining us now, we've got the analyst behind that call, Ygal Arounian. He's the director of Internet Equity Research at Citi. Ygal, it's great to see you here.

So Bumble, if you take a look at the performance, went off over 30% over the past year, hasn't done much since the start of the year. Why do you like him?

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YGAL AROUNIAN: Sure. Thanks for having me on. OK. I think Bumble's in a place right now where they have a number of product initiatives that were delayed later in the later part of last year. It took some time to get out. They're out now. We think some of those things are going to start to drive better conversion and better user growth. We also just like how Bumble is positioned within the online dating landscape.

They've been-- it's been taking share quite materially from Tinder and some of the other apps over the last couple of years. We think they can continue that share gain. A lot of the brand message from Bumble really resonates well, particularly with younger audiences, who think that app is well positioned to take share within online dating. And that's really the crux of why we like it here right now.

INES FERRÉ: Ygal, and talk to us a little bit about the differentiator that Bumble has, which is women first as far as the origin women first. Then compare that to, for example, Match. I know that you also cover Match.

YGAL AROUNIAN: So that women first differentiation for Bumble really goes a long way. I think it's-- a big part of the brand resonance. It tends to do better with women and as we all know that having the good kind of equilibrium between men and women on the app goes a long way to improving the experience.

The brand also tends to resonate a little bit better with younger audiences right now. And there's a lot of focus on Gen Z and getting Gen Z to adapt, one app over the other right now. For Match, it's by far the biggest asset that is Tinder and really Tinder is the biggest dating app within that online dating ecosystem by a wide margin. And it's seeing some opposite kind of momentum there.

It's lost a lot subscribers last quarter. It's expected to lose them again this quarter, some specific dynamics going on there. But in general, it's been losing share of time spent, on the amount of time people spend on dating apps overall. It's lost some share. It's lost some share internally to another Match app, Hinge, but it's also lost some of that share to Bumble.

So right now, we're seeing is a big battle for market share. Overall, the amount of time spent on these dating apps overall has really been flat to slightly down over the last couple of years. So we've-- you know, feel like maybe have hit some level of cap on the amount of time people are willing to spend on the apps overall. And that's why this shift in market share has become really important.

SEANA SMITH: You know, there's lots of debate about out there about whether or not dating apps like Bumble are recession-proof. What do you think?

YGAL AROUNIAN: Mildly, maybe, certainly not the most sensitive to recession. That said, there are certain demographics that are more exposed to it than others across the different apps. So in some cases, yes, you do see and you did see a lower propensity to spend at the onset of some of the, you know, macro challenges that we've seen.

There are some pressure on the amount of subscriptions and how much people are willing to spend on subscriptions. That's stabilized to a certain extent. So it's still lower than it was when times were better, hasn't gotten incrementally worse.

So there's some kind of base level that people are willing to spend to meet people and go out and try to find the right person. But there is also a limit to how much they are willing to spend, and people do tighten up their wallets to a certain extent, even for online dating.

SEANA SMITH: Ygal, to that end because the focal point here for Bumble, for Match or really any of these players within this space is the focus or should the focal point be on the conversion to a paying user? Is that just as important as really growing that overall user base, given the fact that this industry seems to be at least maturing at least here in the US?

YGAL AROUNIAN: I think it's even more important. And you're right, the industry is maturing more in the US than it is internationally, although there's a debate to, you know, what the right level of maturity or how mature they can get in international markets just because, you know, the consumer behavior around dating apps is so different market by market.

So I think, in general, you are seeing some upside limit to how many users we see collectively here. The other thing that's happened is the space has gotten more competitive.

When Tinder first blew up, it was really the only large dating app that was geared towards younger audiences, and now you're seeing more and more of those. So landscape's got more fragmented. And as people spend time on more apps than they used to, it's not all incremental. So some of the time that you're going to spend on one app is going to likely come at the expense on another app.

So that conversion of those free users to paying users is I think is as important as it's ever been in this space. And it's largely because of that point that we are at-- I'm not going to call it full maturity, but there's some level of maturity that we've seen over the past number of years, and there's a lot of focus on conversion right now.

INES FERRÉ: Ygal Arounian, Citi director of Internet Equity Research. Thanks so much for joining us.