Shares of meal kit maker Blue Apron (NYSE:APRN) popped by more than 20% on Monday after the company inked a partnership with Walmart (NYSE:WMT). On the surface, that sounds like a pretty big deal. A left-for-dead meal kit maker partnering with the world’s biggest retailer is a promising development. From that perspective, a 20% rally in ARPN stock makes sense.
But the details of the partnership are less rosy.
The partnership is with Walmart, but it doesn’t have anything to do with Walmart stores. Instead, it has to do with Jet, an e-retail company that Walmart recently acquired. Moreover, the partnership isn’t a Blue Apron roll-out through all of Jet. Instead, it is a roll-out through Jet’s City Grocery offering, which presently encompasses just one metropolitan area (greater New York City).
In other words, the headline “Blue Apron strikes a deal with Walmart” is a bit misleading. The reality is that while Blue Apron did strike a deal with Walmart, the deal is a narrowly positive development wherein Blue Apron meal kits will be sold on Jet to customers in one city.
Granted, this could be the start of a huge trend wherein Blue Apron gets its second wind from an ecommerce push. But, at the present moment, the risks remain too big to bet on an ecommerce-led turnaround in ARPN stock.
Instead, the best thing to do is stay on the sidelines, be mindful of these developments, and be ready to buy any potential rally if the numbers start to meaningfully improve.
Until those numbers improve, buying APRN stock at these levels is all speculation.
The Walmart Deal Is Overstated
Even as a long-term bear, I admit that Blue Apron’s partnership with Walmart could be the start of something of big, especially considering that it comes on the heels of a partnership with GrubHub (NYSE:GRUB).
All parts of retail are moving online. It only makes sense that meal kits move online, too. Blue Apron is in the early stages of making this push. If successful, and ecommerce migration sparks enhanced mass market interest in meal kits, then Blue Apron could go from a subscriber-losing and revenue-declining operation to a subscriber-gaining and revenue-growing one in a hurry.
But it is too early to tell whether or not this will happen at this point in time. In its current state, Blue Apron’s ecommerce reach is secluded to one platform in one city. That is very narrow reach.
Moreover, we have no idea whether or not ecommerce reach will improve Blue Apron’s growth trajectory or not. One can reasonably assume, given secular growth trends, that wider ecommerce reach will improve Blue Apron’s growth. But, this has been such a bad stock with such a poor track record of sustained growth that investors need proof of this before speculating on it.
We will eventually get proof. The pilot program with Jet in New York City will give us numbers to quantify the ecommerce impact. If those numbers are good, you could see a pop in APRN stock. If they are bad, you could see the stock give back recent gains.
We don’t have those numbers yet. Until we get them, and until the market is able to quantify what type of impact ecommerce will have of Blue Apron’s financials, investors will be hesitant to send ARPN stock that much higher.
Big Risks Remain
Potential growth through wider ecommerce reach is a highly speculative and very early growth catalyst for APRN stock. Meanwhile, the stock is currently still mired in multiple risks and headwinds that should keep overall investor demand relatively muted.
Blue Apron’s revenues are in free fall. The subscriber base is in free fall. And, the company runs sizable losses. Meanwhile, competition is heating up, and the overall size of the meal kit market has become a huge question mark recently given weakness at multiple meal kit operators.
Broadly speaking, until current negative trends reverse course, most importantly huge revenue and subscriber declines, APRN stock won’t rebound in any meaningful way.
There is hope that broader ecommerce reach will spark a reversal in revenue growth and subscriber growth trends. That may happen. But, it is too early to tell. We don’t have data to substantiate that claim.
Until we get data to substantiate that claim, the market will remain bearish on APRN stock because revenue growth is negative, subscriber growth is negative, profit margins are negative, and shareholder returns over every time frame are negative.
Bottom Line on APRN Stock
APRN stock is a typical “wait-and-see” stock. Wait for the e-commerce pilot program with Jet to play out. See how that roll-out impacts the numbers. Then, investing accordingly. Until we get those numbers, the best to do with APRN stock is simply avoid it.
As of this writing, Luke Lango was long WMT and GRUB.
