Why Tech Veterans Bought Distressed Bumble

SPEAKER_1 (0:00)

Bumble is being taken private by a newly formed investment firm called Ithaca Holdings for $1.3 billion.

SPEAKER_2 (0:07)

I mean, that $1.3 billion number sits in a very, very strange place when you contrast it with their initial public offering peak. The stock has plummeted over 90% since that public market debut.

SPEAKER_1 (0:20)

Right, which is just a brutal drop.

SPEAKER_2 (0:23)

Oh, it's a complete reevaluation.

SPEAKER_1 (0:25)

Yeah.

SPEAKER_2 (0:25)

When you look at the trajectory of consumer tech companies that enter the public markets with those massive initial valuations, a 90% drop is not just a standard market correction.

SPEAKER_1 (0:35)

Yeah, it's not a blip.

SPEAKER_2 (0:37)

Exactly. It represents investors looking at the fundamental business model and deciding the original valuation was based on a future that, well, simply is not going to arrive. They looked at the earning potential, the user growth, the retention, and just bailed out.

SPEAKER_1 (0:50)

The buyers driving this deal, the people stepping into that situation are two Silicon Valley veterans, Ravi Gupta and John Hegeman.

SPEAKER_2 (0:58)

Which is a very specific type of buyer.

SPEAKER_1 (0:59)

Yeah. Gupta brings a background as a partner at Sequoia Capital, and he was previously the Chief Financial Officer at Instacart. And Hegeman was most recently the Chief Revenue Officer at Metta.

SPEAKER_2 (1:11)

Right.

SPEAKER_1 (1:12)

So these are not passive investors throwing money at a distressed asset. They are operators. They've built and scaled some of the most efficient revenue engines in the entire tech sector.

SPEAKER_2 (1:23)

They definitely possess a very specific set of skills when it comes to extracting value from digital platforms. Which leads to the central puzzle of this entire transaction.

SPEAKER_1 (1:32)

Right.

SPEAKER_2 (1:32)

If users are abandoning the app and revenue is shrinking, what exactly are these two executives buying for over a billion dollars?

SPEAKER_1 (1:40)

Well, the market definitely tried to price that in immediately. The reaction to the initial Wall Street Journal report of the advanced talks was just chaotic. Shares jumped 21% right away.

SPEAKER_2 (1:51)

Oh, instantly.

SPEAKER_1 (1:51)

Yeah. They hit a circuit breaker, got halted. And when trading finally resumed, they spiked another 30%.

They ultimately closed 50% higher at $3.80, which was the biggest single session gain the company had ever seen.

SPEAKER_2 (2:05)

A circuit breaker triggering on a stock is always, it's a fascinating mechanical process to observe in real time.

SPEAKER_1 (2:11)

Because it's mostly bots, right?

SPEAKER_2 (2:12)

Exactly. It was originally designed to prevent flash crashes on the way down, but it operates on the way up just as aggressively.

When a financial news outlet publishes a credible report about an advanced acquisition, automated trading algorithms read that headline in milliseconds.

SPEAKER_1 (2:27)

They don't even need a human to hit a button.

SPEAKER_2 (2:29)

No, not at all. They instantly start buying up the stock to capture the difference between the current trading price and whatever the rumored acquisition premium is.

The volume gets so intense that the exchange's computers just automatically freeze the stock.

SPEAKER_1 (2:43)

It forces a mandatory timeout.

SPEAKER_2 (2:45)

Right, it's a forced pause on the floor. And during that pause, human traders, institutional funds and the market makers have a few minutes to actually assess the news, read the details of the leak and place their limit orders.

SPEAKER_1 (2:57)

So everyone is just lining up at the door waiting for it to unfreeze.

SPEAKER_2 (3:00)

Exactly. And when the stock unfreezes, all that pent up demand executes simultaneously.

The market was furiously trying to price in the exact value of Ithaca's offer before the ink was even dry on the term sheet.

SPEAKER_1 (3:12)

And if we look at the underlying financials, they paint a highly specific picture of why this price point exists at all. Bumble earned $72.9 million in adjusted EBITDA recently. So if you annualize that performance, Ithaca is effectively paying somewhere between 3.4 to 4.3 times adjusted EBITDA.

And that 4.3 multiple utilizes the company's recent guidance, assuming the decline in paying users eventually stops.

SPEAKER_2 (3:38)

Even though the guidance doesn't actually promise the bleeding has stopped.

SPEAKER_1 (3:41)

Exactly.

SPEAKER_2 (3:41)

We really need to pause on that multiple because a 3.4 to 4.3 multiple is incredibly low for a technology platform.

SPEAKER_1 (3:49)

It's basically a distressed multiple.

SPEAKER_2 (3:51)

Right. EBITDA is essentially what the business actually made in cash before the accountants get their hands on it to pay taxes and debt.

And in the software industry, companies usually trade a massive multiples of their EBITDA. You often see multiples of 10, 15, or even 20

SPEAKER_1 (4:09)

Because of the margins?

SPEAKER_2 (4:10)

Yes.

The logic there is that software possesses near zero marginal costs. Once you build the application, adding another million users doesn't require building another physical factory. So future earnings should theoretically grow exponentially.