At the time of this writing, Blue Apron Holdings Inc (NYSE:APRN) is trading up more than 8.5% in early morning trading based off of an analyst rating; however, despite this leap, investors cannot ignore the long-term issues APRN stock must endure.
When I recently wrote that Amazon.com, Inc. (NASDAQ:AMZN) could either “buy or destroy” Blue Apron, I didn’t expect the e-commerce giant to make its decision so quickly. Last week, all AMZN did to cause the already faltering price of APRN stock to crumble was file a trademark application.
Never mind that Amazon already sells Amazon Meal Kits. Its merger partner Whole Foods Market, Inc. (NASDAQ:WFM) also sells them. Never mind that the success of the $13.7 billion acquisition is hardly a given.
The Bigger Picture for Blue Apron
The smart money has already decided that when AMZN joins forces, APRN stock will spoil like expired milk.
Although I would love to argue that the conventional wisdom is wrong about Blue Apron, I have a tough time finding much to be enthusiastic about the meal kit provider or its stock. Even though APRN controls roughly 71% of the meal kit market, its dominance has come at a steep price.
During the most recent quarter, marketing expenses reached $60.6 million — 24.8% of net revenue. Spending hit $144 million in 2016 and will likely continue to surge for the foreseeable future. No wonder Blue Apron is unprofitable, losing about $55 million last year.
Anyone who has listened to a podcast in the last year or two has heard an APRN commercial. They have also blanketed social media and National Public Radio. While the company’s brand is synonymous with fresh and healthy food, it has weathered its share of controversy.
A 2015 BuzzFeed story argued that working conditions at Blue Apron’s fulfillment center in California were hellish.
Bottom Line on APRN Stock
Like I said before, there is nothing special about Blue Apron’s business model. It doesn’t take any proprietary technology to sort ingredients in pre-measured containers. APRN’s economic moat is a rain puddle at best. The only way for APRN stock to survive against the AMZN juggernaut will be to slash its prices to the bone — a game that it can’t win.
Unfortunately, there is no hope for Blue Apron stock. The average 52-week price target of Wall Street’s analysts is $2, about $4 above where it currently trades. I don’t want to stick my neck out and predict how low APRN stock can go, but it wouldn’t surprise me if most analysts’ forecasts prove to be conservative.
Of course, Amazon might pick up the company if the price becomes too cheap to ignore, but I doubt it. Ditto for grocers like Kroger Co (NYSE:KR) or big-box players like Wal-Mart Stores Inc (NYSE:WMT), who both currently sell meal kits.
With a market valuation on the path to $1 trillion, AMZN CEO Jeff Bezos has got money to burn as its stock continues to defy gravity. He probably figures it’s a helluva lot cheaper to build his own meal kit operation than buying the existing one that’s valued at more than $1 billion.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.