Fitch Ratings has affirmed
Fitch has also affirmed Buzz's senior secured issue ratings at 'BB+'/'RR1'. The Rating Outlook has been revised to Positive from Stable.
The Positive Outlook reflects Fitch's expectations that the Bumble App relaunch, the workforce transformation plan and international market expansion will drive EBITDA margin improvements, top line growth and lower financial leverage. Additionally, the Outlook reflects Bumble's improved operating performance and platform diversification efforts. The rating is supported by the company's strong FCF generation, conservative leverage profile, and market position in the online dating industry.
Key Rating Drivers
Bumble App Relaunch: Bumble relaunched its Bumble App in 2Q24 with a new marketing campaign showcasing a refreshed brand identity and new product features. The relaunch is intended to improve users' experience on the app, enhance trust and safety features and increase monetization options. Fitch views the relaunch favorably following the softness in Bumble's 4Q23 and 1Q24 revenues, which were affected by macroeconomic headwinds and underperformance of the Bumble Premium+ tier.
New product features include AI-powered tools to enhance profile creation and fake account detections with refreshes to the Bumble Premium+ tier. The company expects reacceleration in 2H24, due to the relaunch, ongoing pricing optimization and international market expansion. Management has guided to Bumble App revenue growth of 9%-11% for the year, with net user adds of 350,000-400,000.
Improvements in Operating Margin: Fitch believes Bumble is positioned for margin expansion in FY24, given the company's focus on operating leverage improvements. Improvements will be driven by the company's transformation plan, which will reduce its workforce by approximately 30%. The company expects the workforce reduction to be completed by 3Q24, with
Robust FCF Generation: Bumble has generated positive FCF every year since 2021 and is forecast to generate FCF margins in the mid-teens to low-20s over the rating horizon. FCF generation benefits from low capex intensity, limited working capital requirements and manageable interest obligations. Consistent FCF strengthens the company's balance sheet and improves it capacity to fund share buybacks and pursue strategic investments. Management has stated that its priorities for capital allocation are organic growth, opportunistic M&A and return of capital to shareholders.
EBITDA Leverage Decline: Fitch-calculated leverage declined to 2.3x in
Significant Level of Competition: Bumble competes in the crowded and competitive online dating industry. Bumble's main competitor is
Fitch believes that Bumble's continued focus on female empowerment and safety and its refreshed product features provide a competitive edge. However, Fitch questions the long-term sustainability against competitors who have significant financial resources and have announced similar female empowerment and safety initiatives.
Consumer Discretionary Spending Exposure: Bumble's revenue and profitability are almost entirely exposed to consumer discretionary spending. Fitch believes that recessionary periods may affect growth as consumers limit discretionary spending. The company reported some softness in FY23 and 1Q24 revenues due to macroeconomic headwinds, which impacted users in the
Limited Product Diversification: Bumble's portfolio consists of two main platforms, Bumble and Badoo, which represented 80% and 20% of revenue, respectively for FY23. Other revenue sources include Fruitz and Official apps, which were acquired in 2022 and 2023, respectively. The company officially launched Bumble for Friends app in
Strong Recurring Revenue: Bumble's revenue is primarily generated via recurring subscription payments and a la carte purchases, which unlock premium features on its apps. The company operates a mix of freemium and pay-to-use applications. Due to the nature of the dating industry, there is an inherent level of expected recurring revenue churn if dating apps achieve their desired target. As such, near-term revenue and cash flow visibility is strong; however, not as predictive in the long term as other businesses with similarly high levels of recurring revenue.
Owner Concentration: As of
Parent-subsidiary Linkage: Fitch applies the strong subsidiary/weak parent approach under its 'Parent and Subsidiary Linkage Rating Criteria'. Fitch believes the linkage between
Derivation Summary
Bumble's 'BB-' IDR reflects its competitive positioning as a safe and female-friendly dating application, relatively conservative leverage profile, strong FCF generation and Fitch's expectation of improved EBITDA margins through operating leverage. The credit profile's strengths are offset by material discretionary consumer spending exposure, limited product diversification and significant sector competition. The 'RR1' Recovery Rating on the senior secured debt reflects Fitch's expectation for a superior recovery based on the company's strong underlying cash flow generation, profitability and brand value.
Bumble builds and operates dating and social networking mobile applications, which most notably include Bumble and Badoo. Fitch believes Bumble's operational, financial and credit protection metrics position it well at the 'BB-' rating level compared with Fitch's rated TMT universe.
Key Assumptions
Fitch expects high single digit revenue growth in FY24 reflecting increase in paying users offset by flat ARPU growth. Growth in FY24 will be driven by the relaunch of the Bumble App in 2Q24, which is expected to improve top of funnel trends and payer conversion. Thereafter, Fitch expects consolidated single digit revenue growth;
Fitch expects EBITDA margins in the high 20% range reflecting operating leverage from the company's FY24 workforce reduction plan;
Fitch expects significant annual share repurchases in line with management's guidance. Approximately
Fitch has forecasted small tuck-in cash acquisitions in the
Stable capital intensity at 1.8% over the rating horizon;
Base interest rates applicable to the company's outstanding variable rate term loan reflects the current SOFR forward curve declining from 5.2% to 4.1% in fiscal 2027.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fitch could resolve the Positive Outlook within its typical 12- to 24-month time frame if Bumble's transformation plan and app relaunch result in expected margin expansion and revenue growth;
If Fitch believes management will sustain capital and financial policies the agency deems appropriate for a 'BB' rating level;
EBITDA margin improvements from transformation plan sustained with revenue growth and diversification;
EBITDA leverage sustained below 3.0x;
Sustained double-digit free cash flow margins.
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Debt funded acquisitions or shareholder returns causing EBITDA Leverage to exceed 4.0x without a credible plan for deleveraging;
Competitors taking material market share from Bumble, resulting in poor operating performance and depressed profitability. Fitch believes indicators would be flat to negative revenue growth and EBITDA margins sustained near or below 20%;
Sustained low single-digit free cash flow margins.
Liquidity and Debt Structure
Strong Liquidity Position: Bumble is well positioned from a liquidity perspective. Sources of liquidity include
Bumble's debt structure is comprised of
Issuer Profile
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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