Things just refuse to get better for Blue Apron (NYSE:APRN). The meal-kit maker went public in June 2017 at a split-adjusted price of $150. The IPO was a dud. APRN stock never had the honeymoon phase that so many other big growth IPOs have.
What happened? In a nutshell, Blue Apron’s big growth didn’t last long. Over the course of its first few quarters as a publicly held company, Blue Apron went from big grower, to big decliner, and APRN stock followed suit.
Today, Blue Apron stock trades hands below $7. That is a 95% plunge in APRN stock over the past 26 months.
Now, not only is Blue Apron stock in free fall, but so is the entire market as the trade war is heating up, global growth is cooling, the yield curve has inverted, and corporate earnings are coming in weaker than expected.
At this point in time, investors should reasonably ask themselves “why buy a losing stock in a down market?”
Don’t. The answer is that simple. Don’t buy APRN stock. The reality is that this stock will remain a loser for the foreseeable future, especially if broader markets remain weak.
Why Blue Apron Stock Will Remain in a Downtrend
At some point, Blue Apron management could figure things out, and APRN stock could stage a huge turnaround. It remains unclear when that will happen, if ever. As such, so long as turnaround prospects remain bleak and lack visibility, the best thing to do here is to avoid Blue Apron stock.
Blue Apron went public under the idea that this was the leading company in a secular growth meal-kit market that would ultimately replace grocery shopping at scale. The company’s ubiquitous podcast advertising helped fuel that image.
That was all smoke and mirrors. Blue Apron isn’t the leading company in the meal-kit space. Instead, it’s one of several, undifferentiated players. There is very little brand loyalty in this space. If anything, consumers actually trust meal kits from their grocery stores over meal kits from a largely unknown third party like Blue Apron. As such, the purveyor is being squeezed out of an ultra-competitive and way-too-crowded meal-kit space.
While the meal-kit market has grown significantly over the past several years, meal-kits don’t exactly project as the next big thing in the grocery world. It increasingly appears that in-store meal-kits will just be another convenience item in the grocery world. That’s why Packaged Facts expects growth rates in the meal-kit space to decelerate into single-digit territory by 2023.
Even further, Blue Apron runs huge losses. In an attempt to improve profitability, Blue Apron has cut down on marketing spend. But, that has resulted in huge customer churn. That lost revenue has added more pressure to cut costs. Not only has Blue Apron been unable to turn a profit, but the outlook for the company to turn a profit is bleak.
Net net, Blue Apron is an undifferentiated, unprofitable player in a volatile and niche meal-kit market. That reality ultimately implies that APRN stock will remain in a downtrend for the foreseeable future.
Here’s When to (Maybe) Buy Blue Apron Stock
Although I’m avoiding Blue Apron stock for the foreseeable future, I also understand that there are circumstances when the shares could stage a big comeback rally.
Those circumstances include customer growth and margin improvement at the same time. Blue Apron has not been able to do this yet. Any time the company reports positive customer growth, it’s because the company spent more on marketing, and margins were negatively impacted.
On the flip-side, any time they report margin improvement, it’s because they spent less on marketing, which resulted in huge customer churn.
The story at Blue Apron has been dominated customer growth and margin improvement going in opposite directions. All it will take for APRN stock to fly higher is one quarter wherein the two run parallel. At this point in time, it doesn’t look like that will happen anytime soon. Customers dropped nearly 40% year-over-year last quarter, and management said that marketing expense rates will likely rise into the back half of 2019.
Nonetheless, if Blue Apron somehow pulls a rabbit out of its hat and reports both customer growth and margin improvement in any of the next several several quarters, APRN stock will fly higher.
Bottom Line on APRN Stock
There is potential for a big turnaround in APRN stock. But, that potential lacks tangibility and clarity at the current moment. So long as the narrative here remains dominated by the idea that Blue Apron cannot simultaneously cut expenses and keep customers – which basically means Blue Apron is a long shot for profitability at scale — then APRN stock will remain in a downtrend.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.