If I said Blue Apron Holdings Inc (NYSE:APRN) had a rough day, would you even know which day I’m talking about? Since going public, the APRN stock price has had more in common with a sinking ship than anything else.
But the point is all the same: Blue Apron has been bleeding … badly.
Blue Apron Earnings
Before going public in late-June, the APRN stock IPO was priced at the low end of its $10 to $11 range. On Thursday, the APRN stock price plunged when Blue Apron released its earnings, falling 18.83%. It hit a new low of $3.75, down 62.5% from its IPO price not six months ago.
Revenue of $210.64 million came in about 10% ahead of expectations, which is good. But it only grew 2.5% year-over-year. That’s pretty sluggish for a new tech IPO, particularly one that’s not profitable. Blue Apron earnings resulted in a 47-cent-per-share loss, 5 cents worse than analysts’ expectations.
Initially, APRN stock jumped 7% on the news. But the numbers inside the report weren’t great. Management made an effort to cut down its marketing expenses. As a result, marketing expenses made up “just” 16.3% of sales, down from 24.2% YoY. Yet, it saw a 6% YoY decrease in customers and a 9% drop sequentially.
The silver lining?
The company cut marketing costs by 31% YoY and only saw a 6% decrease in customers. In that same frame, sales actually increased YoY, despite the drop in customers. Higher sales and lower costs are a recipe for higher margins. That would be great — if marketing were Blue Apron’s only expense.
Cost of goods sold climbed 13% YoY, while product, technology, general and administrative costs increased 44% to $65.7 million. That’s the cannon ball hitting the ship. Gross margins contracted from 29.1% in the same quarter last year to just 21.9% this quarter.
Can the Ship Be Righted?
Blue Apron earnings weren’t that good and management is trying to change that. They say a new fulfillment center in New Jersey will help improve operations and reorganizing the company will help streamline results. The company fired roughly 6% of its workforce.
The fact that average revenue per user rose about 8% and the number of orders per user climbed YoY and sequentially is great. That said, it’s still sailing without a rudder. Now below $4, investors are clearly saying they feel the same way.
The good news is that customers that do use the service obviously like it — orders per user are up. The bad news is that APRN’s cutting marketing expenses and it’s resulting in less customers. While lower marketing costs can help boost margins, it doesn’t work if all the other expenses are moving significantly higher.
Management needs to cut costs and stabilize margins. Then focus on growing its marketing budget to boost sales and hopefully earnings. Right now, APRN is stuck in a Catch-22. Marketing is resulting in cash burn, but marketing is exactly what they need to drive customers.
Trading APRN Stock
Blue Apron is a great concept, but something isn’t working. Maybe it will be a better fit as an acquisition for a company like Wal-Mart Stores Inc (NYSE:WMT), if it were looking to expand on the grocery-delivery/ food kit front. Obviously the big concern is Amazon.com, Inc. (NASDAQ:AMZN) now that it has Whole Foods.
The losses with Blue Apron are just too big. Analysts are looking for a loss of $1.61-per-share this year and another 72-cents-per-share next year. Revenue is only forecast to grow 12% in 2018. A lawsuit over the IPO would be the least shocking thing with APRN stock at this point.
Now trading at less than 1 times sales, taking a stab at Apron might be tempting. But what’s to stop it from falling from $3.80 to $3? It might seem small, but that’s a 21% decline. And don’t say APRN stock is oversold — it has been oversold basically since it went public.
If you have to play APRN stock from the long side, consider buying it if it gets back above $5. That was the big psychological level that failed just a few days ago.
If the APRN stock price can get back above $5, it’s likely management has taken steps to right the ship. I’d rather wait for some confirmation and be late to the game then jump in too early and sink.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
