Not much has gone right for Blue Apron Holdings Inc (NYSE:APRN) as a publicly traded company. APRN went public at $10 per share, and that is essentially as high as the stock has ever been. APRN stock has done nothing but grind lower since then. Last week, it was hugging the $6.50 level (35% off its IPO price).
But today has marked a temporary change of fortune for Blue Apron shareholders. The bulls have come out in full force, and APRN stock is up about 13% as of this writing.
What’s the catalyst? Broadly bullish analyst coverage. Wall Street flooded the market with 11 analyst ratings on Blue Apron stock today, and seven of them were bullish.
So APRN stock is popping.
But investors shouldn’t fall for this head-fake. Here’s why.
Blue Apron Will Follow SNAP
Remember Snap Inc (NYSE:SNAP)? Much like Blue Apron, Snap had generated a lot of hype heading into its IPO. Also much like APRN stock, SNAP stock struggled on Wall Street in its early trading days (with exception to Day 1, when the stock popped 40% above its IPO price).
But then SNAP stock got some love from Wall Street. Near the end of March, 10 analysts issued notes on SNAP stock, and 9 of them were bullish. SNAP stock bounced higher to about $23 (from a low of $20 in mid-March). Bulls were saying the SNAP story was a turnaround in the making.
Until it wasn’t a turnaround anymore. The company’s first quarterly report hit the tape. It was ugly. The stock got hammered. Then Facebook Inc (NASDAQ:FB) continued to ramp up competition. SNAP stock continued to fall. That dynamic has played out consistently over the past several months. Now, SNAP stock sits just above $14 (a 40% fall from the $23 it was at in March).
Anyone see the similarities?
APRN stock is getting love from Wall Street today. Bullish ratings have poured in from Goldman Sachs, Stifel Nicolaus, Canaccord, RBC Capital Markets, Oppenheimer, SunTrust and Needham. Bulls are calling this the beginning of a turnaround in the Blue Apron story.
But here’s an interesting observation. What do pretty much all of the current APRN bulls have in common with the former SNAP bulls? They all work for banks who were underwriters of the IPO.
So here’s the thing. Underwriters are cheerleaders. Yes, there are rules and regulations that are supposed to keep a bank’s research and investment banking divisions separate, but analysts from underwriting banks are almost always bullish. Consequently, their opinions should be taken with a grain of salt.
Bottom Line On APRN Stock
Outside of that, the APRN and SNAP similarities are just too strong too ignore. SNAP faces immense competition from the far larger Facebook. While bulls initially thought that SNAP would be able to “out-innovate” Facebook, it turns out that Facebook’s scale has allowed it to greatly diminish SNAP’s value.
APRN, meanwhile, faces immense competition from the far larger Amazon.com, Inc. (NASDAQ:AMZN). Today, APRN bulls think the company has a leg-up on AMZN due to first-mover advantage. But just like the Facebook-Snap situation, the Amazon-Blue Apron situation will have an unfortunate ending for the small guy. Amazon will leverage its unparalleled size and network to deliver a more robust meal kit offering, and in turn greatly diminish APRN’s value.
On other fronts, SNAP runs massive losses every year. So does Blue Apron. SNAP’s operating expenses are swelling to support topline growth. Same with Blue Apron. SNAP has user growth problems. APRN has customer retention problems.
All in all, today’s leg higher in APRN stock is just a cheerleader-inspired move. SNAP stock took a similar leg higher back in March. Then it fell 40% over the next several months. Considering the multitude of similarities between Blue Apron and SNAP, it looks like the stock is due for a similar fate.
Ignore the underwriters. APRN stock will follow a similar trajectory as SNAP stock. After this bounce, the stock will continue to grind lower.
As of this writing, Luke Lango was long AMZN and FB.
