The Beating of Blue Apron Holdings Inc (APRN) Stock Is Far From Over

Ouch. Blue Apron Apron Holdings Inc (NYSE:APRN) released its first earnings report today as a publicly traded company, and investors didn’t like the results. APRN stock is down more than 15% as of this writing.

The Beating of Blue Apron Holdings Inc (APRN) Stock Is Far From Over

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Today’s decline is just more of the same for Blue Apron, which has done nothing but drop since its IPO at the end of June. At $5.50, APRN stock is now trading about 45% lower than its $10 IPO price.

Unfortunately, the pain isn’t over for Blue Apron shareholders.

Competitive pressures are mounting, and those pressures are starting to show up at a surprisingly early stage in APRN’s growth narrative. They aren’t going away any time soon. Instead, they will just grow in intensity over the next several quarters.

That means APRN stock will head lower, because its lack of profitability will start to couple with a slowing top-line growth trajectory.

Blue Apron Has Customer Acquisition Problems

The headline numbers were a mixed bag. Blue Apron beat on topline expectations, but missed on bottom-line expectations. That isn’t out of the norm for a hyper-growth start-up like Apron. The company is investing now to fuel sustained growth in the future.

But the norm for hyper-growth start-ups is for revenue scale to drive operating leverage, which in turn creates massive amounts of profits. With APRN, however, questions are starting to arise as to whether the company will ever be able to shift out of its currently big spending habits.

Why? Well, the numbers reveal that without spending an arm and a leg on acquiring customers, Blue Apron simply won’t acquire many more customers.

Revenues surged 42% last quarter. This quarter, they popped a mere 18%. Meanwhile, APRN had over 1 million customers on its platform last quarter. This quarter, that number dropped 9% to 943,000.

Let’s do a double take there because it’s that shocking. Blue Apron is supposedly in this hyper-growth meal kit delivery market, which is still in its early stages. Companies in early-stage hyper-growth markets are supposed to post robust topline growth for many, many quarters. They are also supposed to see their customer base grow each quarter, because secular market growth should offset any seasonality.

But neither of those are the case with APRN. Revenue growth slowed dramatically from Q1, and the number of customers using the platform actually fell.

The culprit is Blue Apron’s lower marketing spend. Apron spent $26.1 million less on marketing in Q2 than they did in Q1.

That isn’t a good sign if the company can’t cut marketing expenses without compromising topline growth, especially considering who Blue Apron is competing against., Inc. (NASDAQ:AMZN) doesn’t need to spend on marketing to acquire customers. They already have 85 million-plus Prime members.

In this sense, Blue Apron’s customer acquisition problem is a huge one because it gives Amazon a significant cost advantage.

Other Key Metrics Are Falling At APRN

But the problems don’t end there with Blue Apron.

Average order value actually fell year-over-year, and that is more of the same for this troubled company. In the first half of 2016, average order value was trending above $59. It is now trending below $59.

Orders per customer also fell year-over-year. In the first half of 2015, customers were ordering on Blue Apron about 4.4 to 4.5 times each quarter. Now, they are ordering on APRN just 4.1 to 4.3 times per quarter.

Its no surprise, then, that Blue Apron’s unit revenue is also in free-fall. In the first half of 2016, customers were spending on average around $265 per quarter on Blue Apron. Now, they are only spending $251 per quarter.

These are APRN stock’s key operational metrics, and none of them are pretty. The number of customers on the platform is actually down versus last quarter, a shocker for a company in a secular growth market. The customers that are still on the platform are ordering less frequently then they did last year. They are also shrinking the size of their orders.

Bottom Line on APRN Stock

Nothing is going right for Blue Apron right now, and it all comes back to competitive pressures. When it was just Blue Apron in the market, everything was fine. Growth was good and spending was on track to normalize.

But now its not just Blue Apron in the market, and everything is not fine. Growth is slowing at an alarming rate, and spending is going to have to remain high if APRN wants to compete with AMZN and others.

In total, that means that although APRN stock has taken a beating, that beating is not over. I’m continuing to stay away.

As of this writing, Luke Lango was long AMZN.

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