What is an IPO? And what's going on with Bumble? - Girlsplained.
Hello peeps,
Welcome to the first issue of Girlsplaining, where I - a girl - explains things. I don't pretend to be an expert on these topics; in fact, I am not. But I understand things fast, and I can easily explain the basics to increase your chances of someday winning 'Who wants to be a millionaire?' with every article you read.
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Today I'm going to explain what an Initial Public Offering (IPO) is.
I chose this topic because Bumble - the Tinder rival - had its own this week. Given that the CEO and most of the board are women in an industry crowded by men I was automatically interested.
An IPO is a concept that lives in the world of numbers and the stock market.
To preface, there are private and public companies. The first ones are companies owned by a limited number of people; they don't need to be accountable to anyone other than the board of directors and even if they can own stock, their shares cannot be bought. An example of a private company is Chick Fil A. It is not publicly traded, but it's highly valued in my heart.
Unlike private ones, public companies trade shares on the stock market, and mortals like us have access to buying them. These companies must follow different regulations and do need to be accountable to shareholders. As a shareholder - depending on the percentage you own - you could be consulted for certain company decisions.
For example, a few years ago, one of Procter & Gamble's largest shareholders, Nelson Peltz, was invited to be a part of the board of directors. Being a public company, they had to ask all shareholders to vote if they agreed or not with his incorporation.
But Camila, I don't understand, who defines if companies are public or private?
Companies start as private, financed by banks or angel investors. As they expand, they need more funding to maintain the operation. There's a moment when companies can decide to remain private and accumulate debt (financed by investors) or issue shares and go public (funded by ordinary people).
How do they go public?
Through an IPO, the moment a private company issues new shares and allows people to buy them. That's why it's called an initial public offering because it's the first time they'll be offering shares to the public.
This issuance is suitable for companies because it allows them to raise money to pay investors and profit.
However, it is a game of chance for those who decide to buy shares in an IPO. Since there is not enough historical information to know if the company will perform well or not, you could either gain or lose money.
Why’s Bumble IPO so important?
IPOs happen all the time, but I find Bumble's story to be particularly interesting. It marks a milestone for women entrepreneurs.
Whitney Wolfe Herd is the youngest female CEO to take a company public. She created this app in 2014 after leaving Tinder for suffering sexual harassment at work.
Bumble is a dating app where women are the only ones who can make the first move (in the heterosexual version). The woman has 24 hours to message her match, and the man has the same time to respond. Wolfe explains she created it this way to break with the "archaic gender dynamics and old-fashioned traditions that still ruled the dating world." This app also allows you to find friends and business connections.
Bumble also owns Badoo, another famous dating app in Europe and Latin America, and it accounts for around half of Bumble's revenue. However, those earnings have been declining in recent years.
Not only has Badoo been declining, but Bumble has been growing much faster. Their annual revenue increased 70% between 2018 and 2019, while Badoo only grew 8% during the same period.
Also, during the first three quarters of 2020, Bumble continued to grow at a 30% rate, but Badoo only increased 11%. In English, Bumble is growing faster than Badoo.
As I said in the beginning, I'm not in any position to recommend buying these shares or not, but if you wanted to, you could already do it from $75 per share. Fun fact: the starting price was $43, meaning the value increased 74,41% in three days.
Look at all the things you learned today:
There are private and public companies.
Companies begin as private firms and can either choose to stay private or go public.
When they go public, they have an IPO.
An IPO is when companies sell shares to the public for the first time.
Whitney Wolfe Herd is the youngest female CEO to take a company public.
Bumble is better than Badoo.
Thanks for reading. I hope you learned something. If so, please recommend it, leave a comment if you want me to explain any particular topic, or buy me a beer if you truly enjoyed it.
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