Bumble Inc. Q3 FY2023 Earnings Call

Thank you for joining. My name is Danica, and I will be your conference operator today. I would like to welcome everyone to the Bumble Third Quarter 2023 Financial Results Conference Call. I would now like to turn the call over to Cherryl Valenzuela, VP of Investor Relations. Please go ahead.

Thank you for joining us for our quarterly financial results. With me today are Whitney Wolfe Herd, Founder and CEO, and Anu Subramanian, CFO of Bumble. Before we start, I'd like to remind everyone that some statements made during this call are forward-looking. These statements come with various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and the information available to us at this moment. While we believe these expectations are reasonable, we have no obligation to update any statements to account for changes that occur after this call. We discuss factors and risks that could cause actual results to differ from these forward-looking statements in more detail in our earnings press release and SEC filings, including our annual report for the year ended December 31, 2022, and later periodic filings. During this call, we will also mention certain non-GAAP financial measures, which should be viewed as supplementary to our GAAP results, not as a substitute. Reconciliations to the closest GAAP measures can be found in today's earnings press release on our Investor Relations website. Now, I'll hand it over to Whitney.

Thank you, Cherryl. Good afternoon, everyone. Thanks for joining our call today. Before we dive into our third-quarter results, I want to spend a moment on the exciting announcement we made yesterday regarding the future of Bumble Inc.'s leadership. Lidiane Jones, who currently serves as Chief Executive Officer at Slack and has more than 2 decades of experience as a product, technology, and business leader, will join Bumble Inc. as our next CEO effective January 2, 2024. At that time, I will transition to the role of Executive Chair. This announcement is a monumental moment in Bumble Inc.'s evolution and is the result of a thoughtful and deliberate succession planning process. The Board and I have thought hard about what type of leader could ultimately step into the CEO role as a successor to me and help continue to take Bumble Inc. to even greater heights. We were thrilled to find someone with Lidiane's background, passion, and values to propel Bumble forward. Having her leading this next chapter of Bumble Inc. is a major win for our company, members, team, and shareholders. For me, the last decade taking Bumble from just an idea to a publicly traded company has been incredibly rewarding and fulfilling. I founded this company to empower women to make the first move. Now after more than 1 billion first moves and countless success stories, I am ready and excited to make the next move. I am stepping forward into the Executive Chair role, allowing me to get back to my founder roots and bring immense passion and focus to this next phase of Bumble's growth. I believe in Bumble Inc.'s significant potential today more than ever before, and I am incredibly optimistic about the future. In this next chapter, we will continue to work towards our North Star, our mission of creating healthy and equitable relationships through kind connections. How we do this is with continued focus on our top 3 priorities: customer, tech/AI, and brand. Starting with customer. We have always been and will continue to be a customer-first company, which means that everything we do is to maximize success for our members. We are focused on customer pain points. We build on what is working for them and continuously innovate to improve their experience and strive to keep our customers safe. Trust and safety is by design, not an afterthought. Our second focus is on tech and AI. We leverage data, machine learning, next-gen tech and now increasingly generative AI to innovate and build for the next horizon of growth and impact. Our customer base and the associated unique data set we have built up over many years allows us to deliver relevance and value to our customers in unique and meaningful ways. We are committed to integrating AI where possible into every step of the user journey beyond what we've already been doing for years via our algorithms. And finally but very importantly, our brand. It's what drives loyalty and creates the network effects that lead to both top-of-funnel growth as well as bottom line results. Our brand helps us propel our mission and make a positive impact in the world. By focusing on these priorities, I believe we are well-positioned for the future of relationships. To underscore the confidence we have in our long-term business trajectory, we are announcing that our Board of Directors has increased our existing stock repurchase program authorization from $150 million to $300 million. Now moving on to our results. In Q3, our continued execution against our strategic objectives delivered strong financial performance across both top line and profitability. Across both Bumble and Badoo, we gained download share on a global basis and also saw accelerations in sequential paying users, demonstrating our continued ability to grow our footprint across the world. Total Bumble Inc. revenue this quarter increased 18% year-over-year to $276 million. And adjusted EBITDA reached $75 million, representing an adjusted EBITDA margin of 27%. Bumble app's Q3 revenue grew 23% to $222 million driven by continued momentum in paying users, which were 2.6 million, up 25% year-over-year. From Q2 to Q3, we added 147,000 payers, an increase from the prior 3 quarters. Our growth is driven by our sharp focus on the customer. We are making great strides on product innovation, further international expansion, and continued focus on building a trusted and safe brand for women. Our product shipping velocity is stronger than ever, and we are pleased with our progress on this front this year. Our goal remains to enhance the core experience and explore new discovery and engagement models that are designed to reduce friction and emphasize efficiency, safety, kindness, and compatibility in the matching-to-meeting process. Our goal is to get people online to go offline. With respect to new features, revenue contribution from newer releases such as Compliments and Best Bees continues to ramp. As a reminder, Compliments is our message-before-match offering that encourages kindness and positive connections, while Best Bees is our AI-powered match curation tool, showing you the people who are most compatible for you and is currently included in our Bumble Premium subscription tier. Q3 marked a meaningful step-up in Compliments revenue with positive user reaction from recent changes designed to drive greater awareness, visibility, and payer conversion. We are also seeing improved activity and revenue metrics for Best Bees. As we mentioned last quarter, we are excited to be introducing 2 new subscription tiers for our members. These will not only enhance current offerings but also enable us to better and more directly serve the needs of our high-intent, serious dating customers and Gen Z users. Our higher tier, which will be called Premium Plus, aims to elevate our power members' dating experience to improve their chances for a match. Premium Plus is actively being tested in several countries with promising initial results. Our lower price tier is also currently in limited testing. This tier is focused on helping our younger members express their personalities on a deeper level and find connection in fun and social ways. Our goal is to expand testing and launch both tiers in the coming quarters. As always, we augment these new features with under-the-hood optimization that are meaningful in improving the user experience. In Q3, these included improvements in our machine learning algorithms, our recommendation engine, which have all resulted in increases in relevance and metrics with strong positive impact on user experience, especially for women. In addition to product innovation, a key focus area for Bumble app has been to grow its reach internationally. In Western Europe, we saw robust user payer and revenue growth. We remained the number two dating app in Germany. And we gained download share in markets such as Austria, France, Switzerland, and the Netherlands. Our Latin America and Asia expansion is also performing well, demonstrating the broad global appeal of our brand and product. Now turning to our other apps. Badoo App and Other revenue totaled $54 million in Q3, up 3% year-over-year. This marks 2 consecutive quarters of year-on-year revenue growth and sequential net add growth for Badoo, which is an exciting and encouraging milestone. We also continue to see improving trends across many metrics, including global registrations, monthly active users, and engagement. As we plan for 2024, we are excited to build on this momentum with the brand and identity refresh aimed at improving awareness in key markets, especially among our women users. We intend to supplement this with targeted marketing campaigns showcasing Badoo's vision of becoming the app of confidence in 2024, enabling its highly loyal user base to express and be their real selves in a safe and trusted environment. Outside Badoo, we continue to be pleased with the performance of Fruitz. Its recent launch in the U.K. is the first step in its expansion into more international markets. Our product focus continues to be around Gen Z engagement and monetization with the recent launch of weekly subscriptions, addition of new features behind the paywall, and progress of revenue optimization. Now moving on to the opportunity beyond dating. BFF or Bumble for Friends, the stand-alone app has now been rolled out in several markets, including the U.S. Downloads for the stand-alone app have been strong, and we are excited by the growth that we've seen so far for MAU, engagement, and retention, particularly with Gen Z women. As we look ahead, our near-term focus areas are on future development, in particular around groups and communities and driving greater awareness. In Q3, we leveraged our strength in back-to-school programming to increase U.S. college student awareness. And we intend to continue this in Q4 via partnerships that center on celebrating friends and communities during the holiday season. In closing, we are making excellent progress on our priorities and building momentum across our business. The execution of our strategy is driving results and is a testament to our team's hard work and dedication, which is enabling us to deliver for our users and shareholders in ways no one else can. I'd like to conclude, as always, by extending my deep gratitude and appreciation to all of our employees and to all of our customers, partners, and investors for their continued trust and support. I cannot express how deeply grateful I am to have had the opportunity and privilege to lead as Bumble's CEO for all of these years. And I look forward to stepping forward into this next role as Executive Chair. None of this would be possible without you, Team Bumble. So with that, onwards, and thank you so much. I will now turn it over to Anu for a discussion of our financial results and outlook.

Thank you, Whitney, and congratulations on stepping forward into the Exec Chair role. I look forward to partnering with you on a seamless transition and welcoming Lidiane to Bumble over the next few months. And good afternoon, everyone. Our third quarter results reflected continued progress on our strategic priorities across our family of apps. We achieved strong revenue growth while operating with discipline to deliver strong margins and cash flows. As I walk you through our results, please note that unless stated otherwise, all growth comparisons are on a year-over-year basis. I'll discuss Q3 before turning to our outlook for Q4 and full year 2023. And I will conclude with a preliminary view for full year 2024. Total revenue for Bumble Inc. reached $276 million, up 18%. FX benefit was $2 million lower than what we had assumed at the time of our prior guidance. Both paying users and ARPPU contributed to revenue growth with total paying users increasing 16% to 3.8 million and total ARPPU increasing 2% to $23.42. Revenue from Bumble app was $222 million, up 23%. Bumble app paying users grew 25% to 2.6 million, adding 147,000 net adds sequentially. Growth in paying users was driven by both strength in monthly active users as well as payer penetration gains in many key markets. Bumble app's ARPPU was $28.38, down 2% year-over-year but up 1% on a sequential basis. The year-over-year decline was primarily driven by geographic mix shift, partially offset by pricing optimization. Now moving on to Badoo App and Other. Badoo App and Other revenue was $54 million, up 3%. Badoo App and Other paying users, excluding Fruitz and Official, grew 1% to 1.2 million. On a sequential basis, Badoo paying users increased by 40,000. Badoo App and Other ARPPU, excluding Fruitz and Official, was flat at $12.79. Turning now to expenses. Total GAAP costs and expenses were $246 million for the quarter, up 20%. On a non-GAAP basis, excluding stock-based comp and other noncash or nonrecurring items, our total non-GAAP costs and expenses were $200 million, up 17%. Cost of revenue was $79 million and grew 25%. As a percentage of revenue, cost of revenue was 29% versus 27% in the year-ago period mostly due to higher App Store fees as a result of compliance with the Google Play mandate. Sales and marketing expenses grew 10% to $66 million. This represents 24% of revenue versus 26% in the year-ago period. G&A expenses were $33 million or 12% of revenue compared to $29 million or 12% of revenue last year. Product development expenses were $22 million or 8% of revenue versus $18 million or 8% in the year-ago period. We reported Q3 GAAP net earnings of $23 million compared to $26 million last year. We delivered adjusted EBITDA of $75 million, up 22% and representing a 27% adjusted EBITDA margin. This exceeded our guidance of $71 million to $73 million and reflects our ongoing commitment to financial discipline. While we continue to invest in growing our apps, we remain disciplined on costs and are pleased with the progress towards our margin target for the full year. Turning now to the balance sheet. Our Q3 cash position remains as we generated positive free cash flow of $59 million. We ended the quarter with cash and cash equivalents of $439 million. Our total debt position was $622 million, of which only $6 million is due over the next 12 months. Due to the leadership search in Q3, we did not buy back any shares during the quarter. Approximately $129 million remains on our previously authorized share repurchase program. And today, we announced an incremental authorization of $150 million, bringing the total buyback authorized to date to $300 million with $279 million remaining in aggregate. We are committed to resuming our buyback program and returning capital to our shareholders. Now moving on to our financial outlook for Q4 and full year 2023. While we continue to see strong trends in usage and monetization in general, as we look to the rest of the year, we are monitoring the current macroeconomic backdrop, including the war in the Middle East and the resumption of student loan repayments. Additionally, we are also seeing unfavorable trends on FX compared to our prior outlook. As a result, for Q4, we now expect the following: total revenue between $272 million and $278 million, representing a growth rate of 14% at the midpoint of the range. Our outlook assumes FX impacts to be $6 million worse than what we had assumed at the time of our prior guidance. Our outlook also assumes $1 million of impact from the ongoing conflict in the Middle East, mostly in Bumble apps. Bumble app revenue between $221 million and $225 million, representing a growth rate between 16% and 18%. Our outlook assumes FX impact to be $4 million worse than what we had assumed at the time of our prior guidance in addition to the impact from the conflict in Israel. With respect to paying users, we expect full year Bumble net adds of approximately 510,000 to 515,000, which implies approximately 75,000 sequential net adds for 4Q at the midpoint of the range. We expect Badoo sequential net adds to be flat to slightly positive in Q4. We expect Q4 adjusted EBITDA between $72 million and $75 million, representing 27% margin at the midpoint of the range. For full year 2023, this translates to total revenue between $1.05 billion and $1.056 billion, representing a growth rate of 16% to 17%. This assumes in aggregate a $9 million impact from worsening FX versus our prior guidance and the Israel conflict. Bumble app revenue to be between $845 million and $849 million, representing a growth rate of 22%. This assumes in aggregate a $6 million total impact from worsening FX versus our prior guidance and the Israel conflict. For adjusted EBITDA, we maintain our expectation of at least 100 basis points of year-over-year margin expansion. As we look ahead to 2024, our fundamental strategy remains unchanged, and we are very excited about the future of our business. We have an exceptional brand that is loved and used by nearly 4 million paying users around the globe and growing. We have a strong product pipeline that leverages innovative technologies while prioritizing safety for our users. We are just beginning to realize the potential of our apps, and we see tremendous opportunity to continue to expand our reach in more countries. As we work to refine our planning for next year, we expect another year of solid growth for our family of apps. At the same time, our preliminary outlook also takes into consideration the early stage of our planning process, our leadership succession plan, the trends we are seeing, and expected headwinds from FX. As such, our initial assumptions for 2024 are for total Bumble Inc.'s year-over-year revenue growth rate to be at least in the low teens. This assumes approximately 150 basis points of estimated year-over-year headwinds from FX. On an FX-adjusted basis, this would translate to a growth rate of approximately 15%. As we finalize our investment priority for next year, we will continue being disciplined on our spend. We expect full year adjusted EBITDA margin to expand between 50 to 100 basis points next year. We will share a more comprehensive outlook in our next earnings call when we discuss Q4 results. Before I end, I'd like to echo Whitney's thanks to all our teams for their hard work in driving our business forward. And with that, operator, we can open it up for Q&A.

Your first question comes from the line of Alexandra Steiger with Goldman Sachs.

Congrats, Whitney, on your new role. Maybe 2 questions on the transition here. First one on timing. Could you maybe elaborate a little bit more on the timing of the announcement? When you look at some factors inside the company versus outside, why do you think this is the right time for you to make that move? And then second, listening to some interviews with Lidiane, it appears that she has a very valuable background in terms of AI and bringing features into existing products and services. To what extent is this going to be a focus for her at Bumble? And could it grow with some of the AI initiatives you have played out in the past few quarters?

Thank you for the questions. So the short answer was we didn't make this decision based on timing. This was about finding the right successor, the right leader. The Board and I have been focused on an extremely thoughtful and deliberate succession plan for some time. And so finding the right leader was really the key. And you already touched upon just one of many of Lidiane's incredible strength, and we'll get into that in a moment. But I have to say the short answer is with someone as remarkable as Lidiane and keeping me engaged as the Executive Chair focused on my strength, leaning into my superpowers, right, I think so many of the amazing efforts around our mission, our brand, our marketing, our social impact, our customers, those are things that I'm deeply passionate about and do extremely well so allowing me to move beyond the day-to-day and get into this founder mindset on behalf of Bumble Inc. You pair her with me, it's a remarkable opportunity. I don't think people are fully recognizing how powerful that can be. So really, ultimately, it's going to allow us to both innovate but drive growth across the business, drive new products. And now moving into your second question, let's just talk about Lidiane for a moment. So first and foremost, she is incredibly unique. She is not only wildly intelligent and capable, she has insane followership. I mean, her people that she has led love her. That was always going to be critical for a leader to be my successor. And then when you double click on her qualities and her experience, she's a software engineer. She speaks system. She speaks the language of technology. She is going to get in there and be not only a technology mind but an incredible product innovator. She is a customer-first product person. If you look at the products she's worked on, these are products we love and adore. So with the note on AI, the short answer is yes. She is going to show up on day 1. We've been doing so much work on the back end of AI already ranging from, I would call it, 3 main buckets. Tools, where we can integrate different AI tooling to enhance the customer experience, to supercharge the under-the-hood efforts and then also drive efficiencies and drive strength as far as the leadership team and the broader teams go. The second bucket is really the noncustomer-facing efforts that she's going to be leaning into. This is supercharging our algorithms, further enhancing our safety and moderation efforts, using AI as this underpinning supercharge effort to bring the world closer together and to drive healthy relationships. And then the third bucket is the customer-facing stuff. This is what we're all reading about and thinking about all day. This is where generative AI comes in. She has done this. She knows this. It is natural and native to her. It's not something she needs to learn when she arrives. She will show up day 1 ready to roll. And so we're so excited about the opportunity, what this means for the member journey, the member experience. And we think this gives us a massive competitive edge. So with that, I hope you can hear it in my voice, I am in this to win this. She is so excited, and I think we are going to embark on Bumble’s most exciting chapter yet.

I had two questions. First, could you elaborate on the macroeconomic effects you are observing? You mentioned student loan repayments, but where is this having the greatest impact on the Bumble app, Badoo, and ARPPU compared to payers? Additionally, thank you for the initial guidance for 2024. At a high level, could you provide any insights on the expected contributions from the Bumble app, Badoo, or ARPPU in relation to payers?

Sure, I can take that. Regarding the macro environment, we’re primarily observing impacts among our younger and more price-sensitive users, particularly due to the resumption of student loan repayments. While Bumble Premium adoption rates have remained stable throughout the quarter, we're noticing a slight effect on younger users specifically with Bumble Boost. We are monitoring this closely, but it appears limited to a specific group that feels this impact more acutely. This situation is primarily occurring in the U.S. and is more pronounced on Bumble than on Badoo. In relation to your second question about 2024 guidance, we’re still in the planning phase for next year with numerous factors to consider. However, there is considerable excitement surrounding our product roadmap and international initiatives, with our teams actively developing these plans. We are eager about what these developments will bring for us next year. For guidance next year, we wanted to provide some initial figures for context, particularly with the upcoming CEO transition. Currently, we anticipate total income revenue growth in the low teens. We expect a 1 to 2-point foreign exchange headwind next year, which means that excluding foreign exchange effects, we are projecting roughly 15% growth at the income level. Breaking this down, we're optimistic about strong contributions from both Bumble and Badoo, which is on the path to stabilization. Bumble BFF is expected to be a significant driver of user growth, and while we have some monetization strategies in place, much will still be in testing next year. Additionally, Fruitz and Official are exciting new additions to our business. For the Bumble app specifically, we expect revenue growth rates to be slightly higher than the overall company growth rate, aiming for low to mid-teens growth in that area. We’ll further discuss the specifics, including how we approach payers versus ARPPU, but our focus on increasing the number of payers will remain strong for next year. Badoo is also poised to make a significant revenue contribution, especially from the Badoo App and other lines. Lastly, regarding EBITDA, we remain committed to margin expansion. We’ve provided preliminary guidance with expectations of expanding margins by approximately 50 to 100 basis points. While we haven’t finalized all investment areas, particularly concerning AI and data, our dedication to margin growth is steadfast. We’ll provide more detailed information, but at a high level, this outlines our approach for the next year.

I wanted to see if we could connect some of the guidance with the recent changes. I know you mentioned in the 2024 preliminary outlook that you'll build on the leadership plan and are finalizing your investment priorities, while still maintaining a strong emphasis on product. With Lidiane joining the team and you transitioning to the Executive Chairman role, how do you view those investments? Are there any changes in strategy? Are you putting things on hold? How do you plan to manage that transition? Please help us understand how all of this will come together.

Yes, our strategy has remained largely consistent since we first went public. The foundational elements for our growth haven't changed, and as Whitney noted, we continue to focus on innovation, customers, and brands. We don't anticipate this changing next year either. With Lidiane's expertise in product and technology, we see that as a key area for investment. This aligns with what we've been emphasizing over the past few years, which drives our operations. As Lidiane gets acclimated to the business, we expect her to contribute strong ideas, making some aspects of our strategy adaptable for the upcoming year. In terms of our broader guidance, we wanted to provide a framework for everyone to work with as we approach 2024.

Let me try 2, please. One is just a quick thought on why no repurchases in the quarter? And then second is, could you provide more color on the 2 product subscription tiers, please, the one that's lower priced in terms of the timing, the pricing, and the rollout for both plans, please?

Yes, Shweta. Regarding why we didn't buy back any shares, we were in the market during a leadership search, which prevented us from making purchases due to legal considerations. That's why we were unable to buy shares. I'll now hand it over to Whitney for the product discussion.

Thank you for the question. Let's discuss the two subscription tiers, starting with Premium Plus. We are very excited about Premium Plus as it has been one of the most requested features for a long time. This tier offers a more curated, higher-intent, and thoughtful experience, which increases the chances of a match. The early indicators and results have been encouraging, and we expect to provide an update soon. On the other hand, the base tier is designed to focus on different types of engagements and a more personalized experience, particularly for Gen Z. The way younger individuals, aged 18 to 22, express themselves is quite different from older age groups. We excel at understanding their needs when it comes to meeting new people. This base tier is currently in early testing, and while we don’t have specific timing or pricing details to share yet, I can confirm that it will be offered at a low price point. Our goal is to attract more users and create a more engaging experience for the next generation. Meanwhile, Premium Plus will provide a more upscale experience than our current premium offering. We believe that this combination will enhance ARPPU while expanding our user base.

I wanted to talk a bit about Badoo. You mentioned a brand and identity refresh planned for the beginning of next year. How do you see the timeline for that contributing to user and revenue growth for Badoo in 2024?

Thanks for the question. So you know what, we're really excited about Badoo. We have a great team leading Badoo, and they are really anchored on one key focus: build confidence. So this is a quite remarkable finding. If you go and speak to the Badoo audience prior to some of these efforts that we've been leading that have been leading to the results you're seeing that we reported today and what we expect to continue, these members say that they want to find someone. They're lonely. They really have high intent to meet someone, but they have super low confidence. They don't feel great about themselves when it pertains to dating and how they think they'll be viewed. And so the team has anchored 100% around that. So you can imagine that will be the nucleus of a hero campaign of a brand relaunch. These are coming throughout the rest of the year, early 2024. I think you will be pleased to see the efforts ramp here domestically but also around the world. And everything is really working backwards from the customer pain points. So they are solving members' issues, which is leading to real tangible results. I actually think there's an important note here for everyone tuning in. Demand for love is at an all-time high. Demand for relationships is higher today than ever, right? We're a lonely society. We're super isolated. We're super disconnected. Social media does not introduce us to our love lives. That said, we see such potential with all of our products, and giving Badoo this real clear intent of solving for confidence has already been proving to be working. So stay tuned. We're really excited with the early progress, and the results should speak for themselves.

Two questions. First, on Bumble app paying users. What are kind of the key geographies for Bumble app paying user growth in the fourth quarter and next year? And then on the recent products, Compliments and Best Bees, are they more so driving payer growth or ARPPU or both? If you can just provide some more color there, that would be great.

Yes, absolutely. As we consider payer growth, our emphasis is on ensuring we expand our payer base in every market. The U.S. will remain a major focus for us, and we aim to keep growing our user base there. You'll see a substantial effort directed toward that. Our international markets are also performing well, and we expect that momentum to continue, not just in the fourth quarter but into 2022 and 2024. We are particularly concentrating on our core English-speaking markets such as the U.K., Australia, and Canada. Western Europe has been a crucial area for us; for instance, in Germany, we are the second most downloaded dating app, which translates to significant payer growth. Other Western European countries like Switzerland, the Netherlands, and France will also be important. Asia, especially India, is a key market for us as well, and we are focused on building a robust user base there while increasing payer penetration. We're also exploring other promising markets in Asia. Recently, we've expanded into Latin America, targeting specific markets there. As we enter new markets, our initial goal is to increase active users, and once we have a substantial user base, we gradually convert them into paying users. Our approach to international growth remains consistent. We are currently assessing which new countries we might enter next year, and we’ll provide more details in February. Regarding your question about Compliments and Best Bees, these products can help drive payer growth and ARPPU depending on how they're developed. Currently, Compliments is mainly an ARPPU driver, contributing to new payers and higher adoption among existing ones, which is reflected in the ARPPU numbers. As for Best Bees, it’s still in the early stages. It's integrated into Bumble Premium, and we have seen good uptake from new users engaging with Bumble Premium through Best Bees. We look forward to developing it further to enhance its capabilities as a driver for payers.

I have two quick questions. First, can you elaborate on the two new pricing tiers for the Bumble app? I understand, Whitney, that you mentioned there would be a focus on maintaining ARPPU. It seems like a reasonable expectation to see a stable ARPPU for the Bumble app in 2024. My second question is about the planning phase for 2024. I realize there are many factors involved, but which specific line items should we monitor for the operating leverage you mentioned for next year?

Yes, I can address both of those points. I believe it's a bit premature to discuss what ARPPU will be like next year. ARPPU is influenced by several factors, including our international mix, price adjustments in various markets, and the new products we are introducing. I encourage you to wait for us to share more details about next year's ARPPU. On a high level, when considering the different pricing tiers, our objective is to attract more paying users from our existing user base. For the higher price tier, it's an opportunity for current premium users to potentially upgrade and spend more, which would positively impact ARPPU. Over time, we aim to integrate non-paying users and Bumble users into the Premium Plus tier, which will also contribute to increasing payers. For the lower tier, our primary goal is to convert users who currently utilize the app for free but haven't opted for Bumble Boost or Bumble Premium. By introducing a lower-priced tier, we can encourage them to start paying for the product and acclimate to being a paying user. As we expand the range of subscription products in our ecosystem, we strive to manage it in a healthy manner. Regarding your question about operating leverage, next year’s building blocks should be somewhat similar to our approach in 2023. We will continue to invest strategically in products and technology, maintaining a high bar for investment. Innovation is crucial for our growth, and we will focus on that. Additionally, we aim to enhance leverage in our marketing spend, as brand development remains a priority. While we will invest a portion of our revenue in marketing, we hope to achieve some leverage there. We also aim to find efficiencies in areas like general and administrative costs as we grow. I expect the cost of revenue to remain relatively stable compared to current levels. More details will follow, and I hope this information is helpful.

Just maybe one on the '24 revenue guide for at least low teens. Can you just help us think about kind of the cadence of that throughout the year? I think you kind of guided to about 14% year-over-year growth at the midpoint for 4Q. Should we be thinking about this as a deceleration from that sort of low end of mid-teens down to low double digits? Or is this going to be a relatively stable level of growth throughout the full year and kind of what you're seeing right now that gives you confidence in that cadence?

Yes, sure. So again, I think it's a little bit too early to be providing sort of very specific quarterly guidance numbers of how we think the cadence is. I think at a high level, if you look at the growth rate that we are seeing today, the way we are thinking about it is we're looking at the growth rate that we are seeing today. We are looking at the product roadmap that we have. We are looking at the things that we know we are either already in testing or have already launched and then will start to become bigger next year. And we see a range of outcomes. So again, more to come on exactly what the quarterly cadence will be, but we feel good about the overall number for the year.

I wanted to ask about the macro effects on the consumer book business. You mentioned that lower-income users are being affected, and that the premium segment is more stable. What observations do you have on the consumable side of the business? Additionally, you've highlighted increased competition from Tinder due to their rise in marketing spend, especially in specific European markets. Can you provide an update on what you're noticing in those key markets regarding marketing competition?

Sure. So on the consumables side, as you know, most of our paying users are also subscribers to our products. So we over-index on the subscription side of the business if you think about the composition of revenue. Consumables is a smaller portion of it. Within consumables, I think we are seeing numbers largely hold steady. So we are not really seeing any sort of big impact in what we are looking at across age groups. I think it's largely been steady. So nothing really to call out yet as something that stands out for us. And then, Whitney, do you want to talk about marketing in general and competition and just what we are seeing?

Yes. This is a major source of my excitement as I step into the Executive Chair role. At my core, I am a marketer and a brand builder. This is a significant strength of ours, reflected in the unique brand we've established over the years. We have a loyal customer base, particularly among women, that we've never seen in any dating-related category before. You don't often see people wearing dating app merchandise in public. The affection our community has for us, their desire for our products, and their pride in our brand is where we truly excel. I'm committed to dedicating immense effort and care into elevating our brand and mission in 2024, fostering a devoted fanbase around Bumble and Bumble for Friends. It's worth noting the special emotional connection women have with Bumble for Friends. Our brand stands for trust, respect, and safety. We have a unique opportunity to amplify that message, which excites me greatly. Coupled with innovation and products, especially with advancements in AI, we are poised for an exciting new chapter. I am not concerned about any competitive threats from a branding and marketing perspective. We're in a strong position.

This is Nathan Feather on for Lauren Schenk. I guess thinking about the product roadmap, what are the kind of the 1 or 2 key features that you're expecting will drive revenue growth in '24? And then given the increased buyback authorization, how should we think the cadence of share buybacks and maybe capital allocation more broadly going forward?

Thanks. So I'll talk about the product roadmap for a moment. So we're super excited about the entire ecosystem that is going to be built inside and around Premium Plus. We see this as our opportunity to build a more premium brand within the brand that exists today. This is going to extend beyond just a couple of features bundled into a subscription. This is going to be an all-inclusive experience. We also feel that there is a huge opportunity to leverage this for the go online to offline opportunity. So people are consistently saying, 'I want to meet people in the real world, but I can't. It's too hard.' You literally have to be at the right place at the right time. It's nearly impossible to meet that special someone in real life. So leveraging Premium Plus is this all-inclusive gateway to meeting incredible people via Bumble but also getting you offline. So we're incredibly excited about Premium Plus. It's not just a revenue driver but a real growth driver, a loyalty driver, recapturing share from these folks that are looking for something more serious. So Premium Plus is really exciting. The other thing I would say is leaning into this theme of confidence, you will see that translate in its own way back to Bumble app as well and using generative AI to really be this best friend in your pocket inside of Bumble to help you date, to build confidence, to feel good about it so that you never delete this app because it didn't make you feel good about yourself. So I think we are really overhauling the entire interface and experience in 2024. And Bumble 2.0 is going to be a product that goes much higher in terms of these offerings, but leaning into the other end of the barbell to really capture that college age audience as well, new discovery mechanisms and really engaging people for the next decade.

Yes. To briefly address capital allocation, nothing has changed in our overall approach. Our primary objective remains investing in our business. We have significant organic growth opportunities ahead, and we want to pursue those while adhering to our margin guidelines. We'll consider M&A opportunities if they make sense, although the criteria for such decisions are stringent. If an appealing opportunity arises, we will certainly evaluate it. Additionally, our buyback program serves as another method to return capital to shareholders, as indicated by the increase in our repurchase authorization from $150 million a few quarters ago to $300 million now. We plan to be strategic about how we repurchase shares, and while we do not have specific plans to share about the timing, this is a priority for us, and we will act opportunistically in buying back shares.

We will take our final question for today from Ben Black at Deutsche Bank.

Great. I just wanted to double click on AI, and Whitney, obviously, you've spoken about AI potentially supercharging safe human connection. Can you just give us some examples of how AI can actually support new innovative sort of product launch at Bumble? And do you also think you could supercharge the velocity of product development as well?

Thanks for the question. Let's address the second part first. The short answer is yes. This next-generation technology and AI tooling, both internally and externally, will significantly enhance our growth speed. Now, let's discuss how this can truly enhance love and connection. The main reason AI can add immense value to our business is that people come to us to meet others. They seek compatible partners who will boost their self-esteem, share passions, values, desires, dreams, and hopes for the future. Currently, even in the early stages of our AI development, the algorithm for Best Bees shows a much higher ability to successfully match and initiate conversations compared to basic algorithms. This is just the foundation of AI capabilities. Imagine a scenario where you no longer have to sift through dozens or even hundreds of profiles to find that special someone. You won't need to endlessly swipe to find someone to enjoy a fun night out with. With integrated AI in our product, this process could be effortlessly streamlined in just moments. Utilizing various available technologies, including photo analysis, voice recognition, and relevance detection, we can efficiently match users with their ideal partners in a safe and effective manner, far exceeding current solutions. Although we are already achieving high compatibility and success rates, this will significantly amplify those results. Now, let's quickly touch on another aspect before concluding. Being able to express oneself is crucial in establishing relevance with others. AI can assist in building profiles, understanding personalities, highlighting your best qualities, and summarizing these into concise profiles. We are just at the very beginning of what this technology can achieve. Lastly, regarding companionship from an AI standpoint, we don't aim to replace humans with machines or bots. Instead, we can offer a personalized bot that acts as your coach, therapist, friend, and companion while you navigate the search for friendship, love, or business connections. We're at the exciting early stages of this journey and hope it reflects in our buyback strategy and my enthusiasm for our talented team and the opportunities ahead.

All right. Thank you, ladies and gentlemen. That concludes today's call. We appreciate you joining. You may now disconnect.