Meal delivery service Blue Apron Holdings Inc. (NYSE:APRN) has enjoyed a lift in recent weeks as a new CEO and a vote of confidence from Barclays gave APRN stock some much needed momentum. Over the past 5 days, APRN stock price has gained 2.39% as sentiment surrounding the company improved.
However over the course of the year the stock has fallen more than 60%. What Happened? Earlier this month, Blue Apron replaced CEO and founder Matt Salzburg with the firm’s CFO Brad Dickerson. The move was applauded by analysts and sent the stock 17% higher in just a few days.
Dickerson’s experience at Under Armour Inc. (NYSE: UA) during the athletic apparel maker’s high-growth days gave investors reason to hope that he will be able to guide APRN into a similar phase.
Barclays analyst Ross Sandler also helped propel APRN stock higher by upgrading his rating on the stock from “Underweight” to “Equal Weight.” Sandler commented that the company appears to be reaching a stabilization point and commended the firm’s decision to name Dickerson as CEO.
Trouble in the Kitchen
While it is true that shaking up the corporate leadership could be a good thing for Blue Apron’s business, Dickerson is inheriting quite a mess that will be difficult to repair quickly. The fundamental problem with Blue Apron is that the company struggles to retain members.
Because of that, APRN has to market heavily to get new people signed up to the service and eventually the company is going to run out of new customers to get on board. Until the firm fixes its customer retention problem, APRN stock will struggle because continuously finding and on-boarding new users is not a sustainable business model.
Is that something Dickerson can fix? It’s difficult to say. For one thing, there’s a question as to whether or not meal delivery services like Blue Apron are simply a fad. The fact that people are not willing to continue the service after the initial trial suggests that once the novelty of meal-deliveries has worn off, there won’t be much of a market left.
Not only is the market questionable, but there’s a lot of competition as well. Ecommerce giant Amazon.com Inc. (NASDAQ:AMZN) is building out a similar offering and supermarkets like Kroger Inc. (NASDAQ:KR) are also starting to offer their own meal-kits that customers can pick up in-store without signing up for a subscription.
APRN Stock Growing Pains
With so many external issues to combat, Blue Apron really needs to be doing everything it can to make its service irresistible to customers. However, so far the company has done very little to slow its revolving door of new users and improve its value proposition. In fact, the company has made a few errors that have had the opposite effect.
In November the firm admitted that its new fulfillment center was experiencing some difficulty getting up and running and as a result the company was struggling to correctly fulfill orders. Those issues caused APRN to cut back on marketing because it couldn’t adequately cope with many new customers while transitioning to the new center.
That’s a huge mistake for APRN and doesn’t inspire a lot of confidence for the firm’s future.
Not only is it a poor business model to rely so heavily on new subscriptions rather than repeat buyers, but APRN is also functioning is a very volatile space. As InvestorPlace’s Lawrence Meyers pointed out, Blue Apron’s business is closely tied to the price of food for the kits and the gas to deliver them.
In the third quarter, the cost of goods sold rose 14% and the firm registered a $68.5 million operating loss. When you add up all of APRN’s expenses, you find that the company has already used nearly half of the $278 million that it raised in its IPO earlier this year.
The Bottom Line
There has been a lot of optimistic talk about Dickerson taking over at Blue Apron, but I think he is tasked to do the impossible: take a terrible business and make it great. APRN stock has very little upside because Blue Apron itself is in a troubling position.
For me, the most concerning part of the business is the massive customer turnover. APRN’s customer numbers declined 9.2% between the second and third quarters and 5.6% from a year ago. Unless Dickerson can come up with a way to keep people signed up, I think APRN stock has a bleak future no matter who is in charge.
As of this writing, Laura Hoy was long AAPL.