Sizing Up Fallen IPO Stocks: Bumble, Beyond Meat, Coinbase

Early 2021 was a heady time for undiscriminating investors. Shares of

GameStop

(GME), which sells videogame discs through mall stores at a time when discs and malls are dying, rocketed from $20 to $325. A penny stock behind the old

Blockbuster Video

rose 1,400%. Anything seemed possible. It was Woodstock for

Robinhood

traders.

Bumble can’t be blamed for investors going wild on its shares back then, or for the fierce inflation and interest-rate hikes that have now put a chill on financial free love. It’s only responsible for running a dating app, and that seems to be going well.

First-quarter Bumble app revenue was up 38%, to $155.4 million, on 31% growth in paying users. That offset declines for a smaller overseas app called Badoo, which was hurt by a shutdown in Russia. A free cash trickle is now gathering into more of a flow. By next year, Bumble is projected to clear $226 million in free cash on revenue of $1.16 billion. That will require brisk but feasible growth, and the margin appears doable, based on a comparison with larger rival

Match Group

(MTCH), which runs both Match and Tinder.

Bumble’s $4.2 billion market value makes for a 5.4% free cash yield based on next year’s estimates. No wonder I’m tempted to swipe whichever way you swipe when you see someone you like on a dating app—if swiping is still a thing.

But there’s the problem. Buy what you know, said star stockpicker Peter Lynch. I’ve never used a dating app. It’s not that I’m so desirable—more of a Hold than a Buy at this point, according to my wife’s analysis. It’s that I last dated in the pre-smartphone era, when the main apps were bars, church, and work. I met my wife when we were stockbrokers at the same firm in buildings two blocks from each other, because this was during a merger spree and management hadn’t yet rationalized its real estate footprint. A classic Manhattan meet-cute, I know.

What are Bumble’s competitive advantages? Women have to make the first move on the app, the company says, “shifting old-fashioned power dynamics and encouraging equality from the start.” I checked some rankings online. A Brooklyn, N.Y.–based wellness website called MindBodyGreen.com says Tinder is best for “hookups”—everyone says that—while Bumble is best for women, and an app called Hinge is best for “quality interactions.” That’s a minor dilemma for women seeking quality interactions, but it’s a good sign. Hinge, by the way, is majority-owned by Match, and emphasizes connections through mutual friends.

Brides.com ought to know about quality relationships. It calls Hinge best overall, and Bumble best for first dates. TomsGuide.com, a site I’ve visited for its benchmarking of computer chip speeds, calls Tinder the best. That’s cool, TomsGuide—no one’s calling you a swinger.

One complaint about Bumble has to do with men. They can “easily respond in uncomfortable ways,” according to Brides.com. That’s worth watching, because a key to Bumble’s revenue growth has been selling premium services that give love-seekers an edge, and one of these involves allowing men more initiative.

In a typical exchange now, a man and woman who swipe each other are a “prematch,” and the woman must reach out. “This creates a certain layer of friction for a man to express himself to showcase his personality,” said company founder Whitney Wolfe Herd during this past week’s earnings call. I thought that was the whole point, but a new feature will allow men to act first and post “compliments.” I predict flawless execution with a 100% rate of men being respectful and appropriate, but I’ve been wrong before.

I looked around for more fallen initial public offerings to consider.

Beyond Meat

(BYND) still seems to be years away from producing free cash, which is unappealing. This past week, it blamed a disappointing quarter on jerky margins, which is a new one for me.

Shares of crypto broker

Coinbase Global

(COIN) closed at $328 on their first day of trading just over a year ago. If you waited, you can now pay $66. The company can produce a flood of free cash, like last year, or it can burn cash, like it might this year, amid a crypto crumble and potential customer backlash.

In a securities filing this past week, Coinbase noted that if it goes bankrupt, crypto held in custody for account holders could become part of the estate and used to pay creditors. Not to worry, the chief executive later said—there is “no risk of bankruptcy,” even with a “black swan” event.

Speaking of which, $1 trillion of crypto wealth has now disappeared in six months, and a so-called stablecoin known as TerraUSD just blew up, despite being backed by other make-believe money called LUNA, which had a reserve fund of Bitcoin. Some traders called that a black swan event.

Time to ease up on that term. “Black swan” comes from a Nassim Taleb book about the impact of some exceedingly rare and unforeseeable events. Some people call these six-sigma events to convey that a) the probability is beyond the sixth standard deviation in a normal distribution, or a two-in-a-billion chance, and b) they went to college.

But if your internet money collapses because the programmer who created it a year and a half ago got in over his head while cosplaying as a central banker, you haven’t found a black swan. You just sat under some pigeons.

Write to Jack Hough at jack.hough@barrons.com. Follow him on Twitter and subscribe to his Barron’s Streetwise podcast.