Blue Apron Holdings, Inc. (NASDAQ:APRN) delivered earnings on Tuesday that were absolutely horrendous and, yet, investors sent APRN stock up more than 10% before realizing they had made a horrible mistake and sold the stock right back down to where it closed on Monday.
Literally, investors got excited because APRN stock did not lose as much revenue or net income as was expected. Clearly, they came to their senses shortly thereafter.
The Good, the Bad and the Ugly… Minus the Good
APRN stock revenue fell 13% year over year to $188 million, yet investors were thrilled because the estimates were for $185 million. So, yes, there was a huge decline and investors got excited, even though part of the reason for the decline was cutting back on marketing to focus on operational improvements.
Well, that’s fair. Get the operation humming as efficiently as possible before marketing the product. But why wasn’t that the case already? Don’t you want maximum efficiency before the IPO?
The net loss for the quarter was 20 cents per share, or $39 million. That’s a larger loss from last year’s $26.1 million, but smaller than the third quarter’s $87 million.
I’m not really seeing anything good here.
More Bad
Both total customers and orders fell YOY. Customers fell about 15% from 879,000 to 746,000, and orders declined from 3.67 million to 3.2 million.
Uh, guys. I’m not really seeing anything good here.
While full-year revenue increased 11% to $881 million, net loss was $210 million, up from $55 million. Adjusted cash flow for the year was a loss of $138 million, also worse than last year’s $44 million. But free cash flow was negative $277 million.
I’m still not seeing anything good here!
That’s because there is nothing good here. I mean, sure, the product is probably really tasty. But operationally, things are not in good shape. If APRN stock is going to burn another $277 million in the next year, it’s out of cash (it has $228 million cash on hand).
More Ugly
The problem with APRN stock is that its entire business model is flawed. Now, let me be clear: I love what Blue Apron does. It sets high quality standards and sources food direct from the best places and farms. It delivers them to your door along with recipes to cook.
The problems are twofold — and they both relate to competition. To begin with, there is tons of it. As vibrant a concept as Blue Apron is, it is effectively a commodity. I don’t mean that every other service sources food the same way, but most people are not that picky — and a food-and-recipe delivery service has no barrier to entry.
HelloFresh is trying to supplant Blue Apron for top place in the meal-kit market. The very idea that Blue Apron is number one with only 746,000 customers should tell you:
- The market itself isn’t terribly large.
- The business remains difficult to scale.
- The market is heavily fragmented, mostly at the local level.
And Amazon.com Inc. (NASDAQ:AMZN) has barely gotten started.
The Bottom Line on APRN Stock
The other issue — and this goes to the smaller size of the market — is that people prefer cooked and ready food. Only people who like to cook are going to order and help drive Blue Apron stock higher.
Right now, Blue Apron stock trades for its net cash, essentially valuing the business itself at zero.
Normally I might say to buy, but with the cash burn factor, I can only suggest you stay away.
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 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
