It's always tricky when a founder/CEO steps down, and it's clear that the market had its concerns when Bumble (BMBL -0.74%) announced that the online dating app's creator, Whitney Wolfe Herd, would be transitioning out of the top post on Monday. The stock took a 4% hit on the news.
Wolfe Herd isn't walking away completely from the company she founded. She will continue to be a director, becoming the board's executive chair when she steps down as CEO in early January. Her replacement will be Lidiane Jones, who has been CEO of Slack for the past year. Despite the market's initial reaction, Jones seems like a smart hire. Let's get there, but first let's turn to Wolfe Herd's success over the past decade and the challenges facing the online dating industry.
Following the Herd
If there is ever a Hall of Fame for dating apps, it's fair to say that Wolfe Herd would be a first ballot shoo-in. She was part of the Tinder founders team in 2012, the disruptive leader in this niche that would eventually be acquired by Match Group (MTCH -0.78%). She left Tinder to launch Bumble two years later.
You can get lucky once in an emerging industry. Lightning doesn't strike twice unless you're brilliant. Bumble stood out quickly by placing women at the center of the app, allowing only female-identifying users to initiate contact on the platform. Bumble remains smaller than Match Group and its collection of dating apps. Its $1.8 billion market cap is less than a quarter of its larger rival's $7.7 billion price tag. It doesn't mean that is has been less successful.
Bumble has routinely grown faster than Match Group. Bumble has increased its revenue by at least 18% in each of the past four years. It's on pace for another year of 18% growth in 2023. Tinder-led Match Group saw its top line rise just 7% last year. Analysts are bracing for a single-digit revenue uptick this year, too. The larger Match Group has been far more profitable, and it trades at a much lower forward earnings multiple. It doesn't mean that it's the better investment at this point.
Image source: Getty Images.
The market hasn't been kind to dating app stocks. Both stocks are down sharply over the past year, dropping precipitously since peaking in 2021. Investors bid up Match Group and Bumble in 2021 as obvious post-pandemic reopening plays, but growth has failed to live up to the initial hype.
It's not surprising that Match Group went with a new CEO last year. Given Bumble's stock performance despite market-leading revenue growth, it's also not a shock to see a change at the helm here. Both companies turned to outsiders far removed from online dating to take over, and it's not necessarily jarring that neither one came from the dating app scene. Match Group's Bernard Kim was formerly president at mobile gaming giant Zynga. Bumble's Jones has years of leadership experience at Microsoft and Salesforce before the latter acquired Slack and tapped her to take over for founder Stewart Butterfield in January.
Zynga and Slack aren't dating apps (at least not officially). However, isn't it smart to incorporate Zynga's skill set in gamification and Slack's networking prowess into the online dating market? Wolfe Herd was a disruptor with Tinder's team and she was able to disrupt the disruptor through Bumble. If the next evolutionary step rests on tech, Jones should have a firm handle on the machine learning and AI enhancements that will keep Bumble growing faster than the competition.
Investors won't have to wait long for more color on the change at the top. Bumble reports financial results after Tuesday's market close. It should be an enlightening earnings call between the leadership transition and Match Group disappointing investors with its quarterly report last week. Today doesn't have to be a bad date if Bumble can once again show that it's growing faster than Match Group and rally investors behind its incoming CEO.
