Fitch Ratings has affirmed Bumble Inc.'s and Buzz Finco LLC's Long-Term Issuer Default Ratings (IDRs) at 'BB-'.

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 $55 million of estimated run rate savings and 300bps yoy improvements to EBITDA margins. Fitch expects Bumble to generate EBITDA margins in the high 20s throughout the rating horizon and has forecast revenue and adjusted-EBITDA growth of 8% and 17%, respectively for FY24.

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 March 2024, in line with Fitch's expectations. Fitch expects Bumble to continue reducing leverage through organic EBITDA growth, while gross debt declines marginally based on annual amortization payments. The company has not publicly communicated a target leverage ratio.

Significant Level of Competition: Bumble competes in the crowded and competitive online dating industry. Bumble's main competitor is Match Group, Inc. which owns two of the largest and highest grossing dating apps in the world, Tinder and Hinge. Fitch believes that multiple large competitors can exist in the dating app space, as users will frequently use and pay for multiple dating applications at once.

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 U.S. generally and younger users with lower discretionary income.

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 July 2023 expanding its apps suite beyond the dating category. Fitch views the platform expansion positively; however, the limited product diversification increases credit risk, as any significant operational or reputational issues may have a significant impact on Bumble's consolidated financial profile.

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 April 2024, Blackstone holds combined voting power of 62.9% in Bumble due its ownership of class A shares and beneficial ownership of common units. Fitch regards the ownership structure as neutral in terms of impact. However, Fitch acknowledges that the potential for exerting control exists, and there is increased likelihood of significant debt-financed payouts to shareholders.

Parent-subsidiary Linkage: Fitch applies the strong subsidiary/weak parent approach under its 'Parent and Subsidiary Linkage Rating Criteria'. Fitch believes the linkage between Bumble Inc. and Buzz Finco is strong, given the openness of access and control by the parent and relative ease of cash movement throughout the structure. Fitch views the entities on a consolidated basis and the IDRs are linked.

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 $700 million of FCF-funded share repurchases have been modelled for the rating horizon;

Fitch has forecasted small tuck-in cash acquisitions in the $20 to $70 million range over the rating horizon;

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 $263 million in cash and an undrawn $50 million revolver as of March 2024. Liquidity will be further supported by consistent free cash flow generation due to strong profitability and limited capital requirements.

Bumble's debt structure is comprised of $50 million senior secured revolver and $626 million of outstanding senior secured term loans. The term loan matures in January 2027 and requires $1.4 million quarterly amortization payments over the life of the term loan. Fitch believes Bumble's liquidity is sufficient to support its debt service over the ratings horizon.

Issuer Profile

Bumble Inc. builds and operates dating and social networking mobile applications, which most notably include Bumble and Badoo, which are two of the top five dating apps globally. Bumble has more than 42 million monthly active users across its operated apps.

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

Bumble Inc. has an ESG Relevance Score of '4' for Exposure to Social Impacts due to Bumble's position as a female-friendly dating application seeking to mitigate harassment or abusive language frequently experienced by women on dating applications, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Fitch believes that Bumble's female friendly policies give Bumble a competitive advantage in the online dating industry, which bolsters the company's strong market position and supports user retention rates.

Bumble Inc. has an ESG Relevance Score of '4' for Governance Structure due to Blackstone's singular control of all operational and financing decisions, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors.

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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