The meal-kit delivery service originally targeted a range of $15 to $17 in its IPO. It had to price APRN stock at $10, however. The IPO price held the first day, no doubt with the help of underwriters Morgan Stanley (NYSE:MS), Barclays PLC (ADR) (NYSE:BCS) and Citigroup Inc (NYSE:C). But APRN has lost almost 25% in the last two weeks — even after a nearly 6% gain Wednesday.
It’s not hard to see why. Blue Apron has leadership in the meal-kit market — for now. But it’s massively unprofitable, and its business model at the moment is to (as the old saw goes) “sell at a loss and make it up on volume.”
Essentially, Blue Apron has to continue to cut costs to improve gross margins, pull back on marketing spending, and continue torrid revenue growth. It’s a big ask – probably too big for APRN stock.
Blue Apron Revenue Is Growing (At Least)
In terms of the positives facing APRN stock, the revenue growth is the most obvious. To be fair, it’s truly impressive. According to the Blue Apron S-1, revenue was $77.8 million in 2014. Two years later, it was more than ten times as much, at nearly $800 million. The growth rate slowed to a still-impressive 42% in the first quarter of 2017.
The bull case for APRN stock is based on that growth continuing, and on the idea that Blue Apron has a truly impressive market opportunity. In the S-1, Blue Apron itself cited projections that online grocery sales would grow at an 8.5% clip over the next four years (including 2017). Blue Apron’s “natural focus” and ease of use (ready-to-cook meals at your door) would seem to position the company to take share both from grocers and from restaurants.
And 900% growth in two years — and $800 million in revenue within five years of the company’s founding — is nothing to sneeze at it. But the problem for APRN stock is how the company is driving those sales — and how, exactly, the company is supposed to turn those sales into profits.