App Store Fee Cuts Set To Boost Duolingo, Match, Bumble Earnings

Bank of America Securities analyst Curtis Nagle projects significant earnings upside for Duolingo, Match Group, and Bumble, driven by potential reductions in Apple's App Store fees following recent legal setbacks and the EU's Digital Markets Act. Nagle estimates that a 100 basis-point reduction in app store fees or a 500 basis-point shift to off-app payments could boost EBITDA by 2.7-3.5% and 2.8-3.3% respectively for these companies, with Bumble positioned for the largest gains from U.S. fee changes. This potential earnings accretion, which Nagle believes Wall Street has not fully priced in, led to modest price target increases for Bumble and Match Group, despite limited upside from EU-specific fee adjustments.

Analysis

A Bank of America analysis identifies a significant, and potentially underappreciated, earnings catalyst for Duolingo (DUOL), Match Group (MTCH), and Bumble (BMBL) tied to regulatory and legal pressures on Apple's App Store fees. App store fees represent a substantial cost, accounting for 17% of Duolingo's cost of revenues and 20% for both Match and Bumble. The analysis quantifies the potential upside, estimating that a 100 basis-point reduction in these fees could boost EBITDA by 3.2% for Duolingo, 2.7% for Match, and 3.5% for Bumble. The impact is most pronounced in the U.S. market, where these companies generate approximately 45% of their revenue, making developments like the DOJ case against Apple more impactful than the EU's Digital Markets Act, which is expected to lift total EBITDA by only about 0.5%. In response to this potential, the analyst has raised price targets for Match to $34 and Bumble to $5.50. However, potential offsets exist, including the risk of user friction from off-app payment systems and the possibility that companies may reinvest savings rather than letting them flow to the bottom line. Investors should anticipate further details during the companies' second-quarter earnings reports in August.

Key Decisions for Investors

• Investors should consider modeling margin expansion for Duolingo, Match, and Bumble, as the market may not have fully priced in the EBITDA upside from a potential reduction in Apple's App Store fees.
• Focus should be placed on U.S. legal proceedings involving Apple, as they represent a more significant financial catalyst for these companies than the EU's Digital Markets Act due to a heavier U.S. revenue concentration.
• Monitor upcoming Q2 earnings calls for management commentary on the progress of off-app payment tests, any resulting subscriber friction, and capital allocation plans for the potential cost savings.
• Given BofA's analysis identifies Bumble as the largest potential beneficiary from U.S. fee reductions, it may warrant particular attention relative to its peers on this specific catalyst.