Grindr won its first batch of Wall Street initiations. Here's what analysts are saying

Published Sun, Apr 7 20248:13 AM EDT

About a year and a half after going public, Grindr is starting to win Wall Street's praise. Over the past two weeks, three investment firms began coverage of the dating platform focused on LGBTQ+ men. These calls come as gains have pushed the stock above the $10 mark. Grindr's late-2022 debut via a merger with a blank-check company was seen as a monumental moment for LGBTQ+ inclusion, as it is proudly by and for gay men. That focus, once something seen as taboo or unappealing in society, is a plus for analysts, who say the qualities typically associated with gay men make them a solid consumer base to cater toward. "The company serves a growing audience with attractive characteristics," Raymond James analyst Andrew Marok wrote in a Wednesday note to clients, initiating coverage at an outperform rating. In the note, he called Grindr "the best house in the digital gayborhood." His $14 price target on the stock implies an upside of 34% from Friday's closing level. Marok pointed to the fact that gay men tend tend to have bigger incomes, higher education and are more likely to live in urban areas than their heterosexual counterparts. They also typically spend a longer time uncommitted to a partner, which the analyst said creates "appealing lifetime values." Elsewhere, Marok said Grindr benefits from a moat and defensible margin structure. He also pointed to the company's large presence in the LGBTQ+ world: The analyst noted that Grindr has 85% brand awareness with far less marketing spend than peers, and pointed to company data showing that the average user is on the app about an hour each day. "Grindr has become synonymous with online gay life," Marok said. "While LGBTQ[+] acceptance is rising, Grindr can help gay men meet for a wide range of purposes under a wide range of societal conditions." Monetization and market opportunities For JMP's Nicholas Jones, a core reason for excitement around the stock is the long monetization runway. In other words, Grindr can benefit as it catches up with other dating apps in premium offerings. Jones estimated Grindr will see 8% of users paying for a product by 2026, up from 7.1% in 2023. And the analyst said growth in average revenue per paying user should start outpacing Bumble and Match Group 's Hinge as monetizing becomes a priority. "We believe GRND is well positioned to continue investing in improving its user experience and enhancing monetization, while preserving its strong margin profile," said Jones, who also has a $14 price target along with an outperform rating. And more out LGBTQ+ people can also be good news for Grindr's total addressable market, which he said is still in the "early days." That's because more people to are expected to feel comfortable coming out of the closet as society in both the U.S. and around the globe becomes more accepting. With more people feeling safe as LGBTQ+, it's reasonable to anticipate more Grindr users. Marok acknowledged that Grindr has a premium valuation compared to dating app peers. But he said the path to sustainable growth and margin profiles warrants a more constructive outlook against competitors. GRND MTCH,BMBL 1D mountain Grindr vs. Match Group and Bumble, year to date Grindr has bucked the trend among dating app stocks this year. Shares have climbed 18% in 2024, while Match and Bumble have tumbled more than 7% and 28%, respectively, over the same time period. Match and Bumble are more widely covered, with the majority of analysts polled by LSEG having buy ratings on each stocks. The average price targets imply Match jumping about 30% over the next year, while Bumble should bounce more than 47%. 'First mover advantage' Grindr leadership has said that the company is more akin to a social media platform than a dating app, given its high levels of engagement among users. In fact, the company has previously shared plans to expand use cases to things like travel in hopes of making Grindr a "gay super-app ." TD Cowen analyst John Blackledge, who was the first to initiate coverage, cited this expanding scope as a reason for excitement. Grindr not using swipe-based matches, and instead having a location-based grid, aids this goal, the analyst said. He rates the stock as a buy. "This functionality leads to various types of use cases, including casual and long-term relationships, Travel, and community," said Blackledge, whose $12 price target implies a 15% upside. "Looking forward, the company should benefit from new features which are in development and tailored to each of these use cases." The lack of swiping is something that others may want to follow as dating preferences shift, said Raymond James' Marok. Specifically, noted the need for a "refresh" in Bumble's user experience to appeal to younger consumers when downgrading the stock to market perform from outperform last week. "We believe that its brand is among the best-positioned in the space in terms of relevance with young people," he said. But "we do see near-term headwinds stemming from changing user habits, which require significant rethinks among apps built in the millennial era." Ultimately, Blackledge said Grindr is unique because it has the "first mover advantage" within the LGBTQ+ community. He expects annual revenue growth of around 13% between 2024 and 2029, with earnings before interest, taxes, depreciation, and amortization margins surpassing 40%. "Grindr has established itself as the leading LGBTQ+ social dating app through strong brand awareness, despite its relatively nascent tech. & product offerings," Blackledge said.