You can dress up food any way you want, but at the end of the day, it’s food. That means there is tremendous competition and low margins. Anyone who bought into Blue Apron Holdings, Inc. (NASDAQ:APRN) has learned this the hard way. APRN stock has flailed for several reasons.
The overarching issue with APRN stock is that Blue Apron does not solve a problem, or at least not a problem big enough to matter. APRN delivers food to your door along with a recipe. There’s nothing special about this.
Sure, APRN dresses it up with its partnerships with farms and engaging in regenerative farming, but in the days when Whole Foods Market is no longer special because every grocery store and farmer’s market carries organics, APRN doesn’t have a sell.
Anybody can go to the store, buy what they need to fit a recipe and be off to the races.
So APRN stock has to compete with all the other food delivery services. This makes it a commodity. That means competing on price in exchange for convenience. That’s all APRN ultimately is, paying for convenience.
And what price it can charge isn’t going to amount to much in terms of profit.
Even worse, this is food. That means one can source from farms all one wants, but food prices are tied to commodity prices. They are also tied to transport costs, such as gasoline and oil prices.
On top of that, because APRN offers a commodity, it has to dump a lot of money into advertising.
The problem is the company is already cash-restricted, and the less the company markets, the fewer customers it will have.
All this is apparent in APRN stock quarterly results. For is Q3, revenues rose only 2.5%. Yet costs of goods sold rose 14%. That additional $19 million alone wipes out the $5 million revenue increase.
Marketing budget was cut by $15 million, but other expenses rose by $20 million. Once you sort through everything, operating loss increased from $37.4 million to $68.5 million, and APRN burned through $123 million of the $278 million in just raised via the IPO.
So after adding the $144 million from a debt offering, APRN stock price reflect the fact that the company’s cash position is $266 million.
APRN tells investors to expect a net loss in the second half of this year of $131 – 138 million and negative cash flow of $70-75 million. At the rate of cash burn we’ve seen, it could be dead inside of one year.
Meanwhile, Blue Apron’s customer base is declining. Blue Apron now has 856,000 customers, and that’s not only a 9.2% decline from Q2, but a 5.6% decline YOY. That’s not surprising. Meal-delivery plans often show a lot of turnover, and there is more competition now than ever before.
The Bottom Line on APRN Stock
What’s interesting is that Blue Apron did own about 57% of the market. That is gigantic and absolutely impressive. However, it also indicates the size of this market in the U.S. is only about two million people. That’s not a lot of market to go after in order to make big profits. Meanwhile, its market share has fallen to about 43%.
APRN stock price is right at $3 per share. I don’t see any reason to get involved as an investor. There could be some trading upside on a quarterly earnings surprise, but I think there are many other trading opportunities with less risk.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.