What happened

Shares of Bumble (BMBL -0.74%) shot up by as much as 13.2% this week, according to S&P Global Market Intelligence data. The online dating company released its fourth-quarter earnings to investors, showing impressive revenue growth that beat Wall Street expectations. As of the market close on Thursday, Feb. 23, shares are up 10.3% this week.

So what

Bumble owns online dating properties like Bumble, Badoo, and Fruitz. It is one of two large dating companies -- along with Match Group, which owns Tinder and Hinge.

Its Q4 earnings were impressive. Revenue grew 16.7% year over year (YOY) in the quarter to $241.6 million, even with major foreign exchange headwinds and declining users on its Badoo application. Its flagship Bumble app is the shining star in its portfolio. Its revenue grew 27.7% YOY in Q4 to $191 million, driven by growth in paying users to 2.2 million, up from 1.64 million a year ago. Investors applauded this strong growth, especially considering its main competitor, Match Group, saw its revenue slightly decline in Q4.

However, it wasn't all sunshine and roses for Bumble. It lost money in the quarter, posting a net loss of $159 million. Some of this was attributed to one-time impairment charges (which is just an accounting change and does not affect cash flow) over at Badoo, but investors will expect the company to start generating a profit at some point. These dating apps have such high gross margins that, eventually, it will be hard for them not to.

Now what

In 2022, Bumble generated revenue of $903.5 million. At a market cap of $3.25 billion, the stock trades at a trailing price-to-sales ratio of 3.6, which could make the stock cheap if it starts improving its operating margins and continues growing revenue. Management thinks this will occur in 2023. They are guiding for 16% to 19% consolidated revenue growth this year and 26% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins.

If you believe Bumble can hit these targets, the stock will likely do well over the next year and beyond. A 16% revenue growth would put its annual revenue at $1.05 billion, which equates to an adjusted profit of $275 million at a margin of 26%. That is a price-to-earnings ratio of just 11.8 at its current market cap, which is well below the market average.

For a business in a category (online dating) that has shown secular growth over the last decade-plus, now could be a good time to pick up some shares of Bumble to hold for many years.