It seems that investors have come to their senses after meal delivery service provider Blue Apron Holdings Inc. (NYSE:APRN) was initially praised for its third quarter results. APRN stock made its way nearly 5% higher after the figures proved that the third quarter was bad rather than appalling, but hours after the post-earnings pop, the share price resumed its downward trajectory.

Earnings Beat?

Much of the reason for the rise in APRN stock price was the fact that the company was able to beat analysts’ expectations in the third quarter with revenue of $210.64 million compared to projections of $191.47 million. Another supposed bright spot was the firm’s net revenue gain- a 3% rise from the year ago quarter. That increase was due largely to the fact that average customer spend had increased.

However, those figures are far from painting a rosy picture for APRN stock’s future and a closer look suggests that they are actually pretty dismal. Blue Apron’s applauded 3% revenue gains are actually part of a much larger, and more concerning, decline. From quarter to quarter, revenue declined sharply and while you might be thinking, “At least revenue is growing from year to year…” consider that in the first quarter year over year growth was 42%, followed by 18% in the second quarter and now 3% in the third.

Not only that, but things aren’t seen improving in the current quarter. Management guided for revenue to be between $169.4 million and $189.4 million during the fourth quarter. Since revenue was $210.64 in the third quarter, that’s another quarterly decline and the high end of management’s expectations still only represents growth of 22% from the previous year.

Tough Road Ahead

Blue Apron is in a tough spot. Not only is the firm struggling to grow its customer base (the firm turned in a 6% decline in customer numbers during the third quarter) but order volumes were also down. APRN is losing its appeal now that the novelty of meal delivery services has started to wear off.

That could be a big problem for APRN stock, because the industry is only getting more and more crowded. Heavyweights like Amazon.com Inc. (NASDAQ:AMZN) who are better funded, have a much larger physical footprint and already have a massive customer base to market to are building out their own meal delivery services.  Supermarkets like Kroger Inc. (NASDAQ:

KR) are working to develop similar offerings that customers can pick up, subscription free, while they are shopping in-store. Then there are smaller rivals like HelloFresh, which is gearing up to go public soon.

APRN isn’t in a great position to fend off growing competition. Only a few quarters into its life as a newly minted public company, the firm is already struggling to get new customers and keep hold of its old ones. How can we expect it to stand up to the likes of Amazon with that kind of customer retention track record?

Choppy Waters

If the quarterly figures that APRN released this week weren’t enough to convince you- just look at the firm’s most recent cost cutting efforts. Blue apron recently laid off 6% of its workers and the company significantly scaled back its advertising spend. That’s not because things are going well, it’s because management foresees continued turbulence in the months to come.

While layoffs can sometimes be a great way for companies to trim the fat and improve efficiency it’s concerning to see that kind of behavior from a firm that only recently had its IPO.

The Bottom Line

There’s a chance that APRN stock will recover as the new, leaner organization turns itself around. Blue Apron CEO Matt Salzburg has said that the layoffs and spending cuts are a good thing for the company over all.

However, that’s not a bet I’d be willing to take. The real problem for APRN is the fact that customers tend to try the service and then abandon it. Meal delivery subscriptions sounded like they could be the next big thing, but consumers appear to be unfazed by the offerings. Unless APRN finds a way to revamp its service to hold on to its customers, I’d keep my distance.

As of this writing, Laura Hoy was long AMZN.