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Rating fallen IPO stocks: Bumble, Beyond Meat, Coinbase

I developed feelings for

bumblebee
,

the dating app and especially the stock. It started trading at $76 early last year and has fallen to $22, costing investors 71% of their money. But who among us has no flaws?

The beginning of 2021 was an exciting time for undemanding investors. shares of

GameStop

(GME), which sells video game discs in malls at a time when discs and malls are dying, rose from $20 to $325. A penny stick behind the old one

Blockbuster video

increased by 1,400%. Everything seemed possible. It was Woodstock for

Robin Hood

dealer.

Bumble can’t be blamed for investors raving about its stocks back then, or for the sharp hikes in inflation and interest rates that are now rocking finance-free love. It’s only responsible for running a dating app, and that seems to be doing well.

The Bumble app’s revenue grew 38% to $155.4 million in the first quarter, on 31% growth in paying users. That offset drops for a smaller foreign app called Badoo, which was impacted by a shutdown in Russia. A free trickle of cash now accumulates into a larger river. By next year, Bumble is expected to unlock $226 million in free cash on $1.16 billion in revenue. That requires brisk but doable growth, and the margin seems doable when you compare it to a larger competitor

playgroup

(MTCH), which operates both Match and Tinder.

Bumble’s $4.2 billion market value translates to a 5.4% free cash yield based on next-year estimates. No wonder I’m tempted to swipe in every direction when you see someone you like on a dating app — when swiping is still a thing.

But there’s the problem. Buy what you know, said star stockpicker Peter Lynch. Never have I ever used a dating app. It’s not like I’m that desirable – more of a hold than a buy according to my wife’s analysis. In fact, the last time I dated was 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 apart because this was during a wave of mergers and management had not yet rationalized its real estate presence. Classic Manhattan meet-up, sweet, I know.

What are Bumble’s competitive advantages? Women need to make the first move in the app, the company says, “shifting old-fashioned power dynamics and promoting equality from the start.” I checked some rankings online. A Brooklyn, NY-based wellness website called MindBodyGreen.com says Tinder is best for “hookups” — everyone says so — while Bumble is best for women, and an app called Hinge is best for “quality interactions.” That’s a bit of a dilemma for women looking for quality interactions, but it’s a good sign. Incidentally, Hinge is majority owned by Match and emphasizes connections through mutual friends.

Brides.com should know about good relationships. It names Hinge best overall and Bumble best for first dates. TomsGuide.com, a site I visited for its benchmarking of computer chip speeds, calls Tinder the best. That’s cool TomsGuide – nobody calls you a swinger.

One complaint about Bumble has to do with men. According to Brides.com, they “can easily react in an uncomfortable way.” 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 those is empowering men to be more self-reliant.

In a typical exchange, a man and woman swiping at each other is a “prematch,” and the woman must extend her hand. “This creates a certain amount of friction for a man to express himself and showcase his personality,” company founder Whitney Wolfe Herd said during last week’s earnings call. I thought that was the whole point, but a new feature allows 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 other fallen IPOs to consider.

Beyond meat

(BYND) seems years away from producing free money, which is unappealing. Last week, jerky margins were blamed for a disappointing quarter, which is new to me.

Stocks of the crypto broker

Coinbase Global

(COIN) closed at $328 on its first day of trading just over a year ago. If you’ve been waiting, now you can pay $66. The company can produce a flood of free cash like last year, or it can burn cash amid a cryptic meltdown and potential customer reaction like this year.

In a securities filing last week, Coinbase noted that in the event of bankruptcy, crypto held by account holders could become part of the estate and be used to pay creditors. Don’t worry, the CEO later said, even with a “Black Swan” event there is “no risk of bankruptcy”.

Speaking of which, $1 trillion in crypto assets has now disappeared in six months, and a so-called stablecoin called TerraUSD has just exploded despite being backed by another token called LUNA, which had a reserve fund of Bitcoin. Some traders called this a black swan event.

Time to relax that notion. “Black Swan” comes from a book by Nassim Taleb about the ramifications of some extremely rare and unpredictable events. Some people call these Six Sigma events to mean that a) the probability is beyond the sixth standard deviation in a normal distribution, or a probability of two in a billion, and b) they went to college.

But if your internet money collapses because the programmer who created it a year and a half ago overextended himself to cosplay as a central banker, you haven’t found a black swan. You just sat among some pigeons.

write to Jack Hough at [email protected] Follow him on Twitter and subscribe to his Barron’s Streetwise Podcast.

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