Blue Apron (NYSE:APRN) reported third-quarter results on Oct. 31 that left APRN stock unchanged. After the company missed on the top and bottom line, investors continue to tread cautiously when it comes to the meal-kit company. As a result, its stock has gone sideways for the past five months.
However, before you write off Blue Apron stock, you might want to compare it to Wayfair (NYSE:W), another big money loser that investors can’t seem to give up on despite the multiple signs it’s got a broken business model.
Trust me, it’s not.
As for Blue Apron, I didn’t even realize it was still publicly listed. The last time I wrote — or even thought — about APRN stock was Nov. 16, 2017.
On that occasion, I included Blue Apron stock in a list with six other money-losing stocks to sell. Since then, APRN stock has lost 84% of its value. Appropriately, given the headline, Wayfair was also on the list. It’s gained 29% in the same period despite losing hundreds of millions of dollars.
It’s never easy to write off stocks, but sometimes, it’s got to be done.
As I said above, Blue Apron’s third-quarter results missed on the top and bottom line. Analysts were expecting revenue of $106.8 million and Blue Apron came in at $99.5 million. On the bottom line, the consensus was a loss of $1.98 per share. It lost a penny more.
But if you look closely I think you’ll find that Blue Apron is far more inviting than Wayfair when it comes to risky bets.
Blue Apron’s Customer Base Is Strengthening
It’s essential to consider Blue Apron’s customer base in terms of the company’s survival rather than merely looking at the actual numbers. They’re not pretty.
In the third quarter, Blue Apron’s revenue fell 34% to $99.5 million. For the first nine months of fiscal 2019, revenues fell 32% to $360.5 million. Under this lens, it’s hard to argue the customer base is strengthening.
However, that’s how CEO Linda Findley Kozlowski has characterized its quarter.
“We’re pleased to see the continued strengthening of our customer base with year-over-year improvements in certain key customer metrics in the third quarter. We continue to believe that the potential for Blue Apron remains significant and that with the execution of our strategy, we will achieve our 2020 growth targets,” Kozlowski stated in the Q3 press release.
The CEO further suggests that Blue Apron will deliver sequential quarter-over-quarter customer and revenue growth in Q1 2020, two quarters from now.
In the third quarter, the company almost delivered sequential growth in average revenue per customer — $258 vs. $265 in Q2 2019 — and orders per customer — 4.5 vs. 4.6 in the second quarter. These two metrics look like they could go positive in the fourth quarter. As for the average order value of $57.60 in the third quarter, that was just 56 cents shy. It, too, should turn positive shortly.
The two more difficult metrics to turn are total orders and total customers. At the end of the third quarter, it had 386,000 customers making 1.7 million orders. Those are both down significantly from June’s quarter and Q3 2018.
For APRN stock to rebound completely, Blue Apron has to deliver growth from these two metrics.
That’s where the risk and reward comes in.
Free Cash Flow Margins
In the third quarter, Blue Apron’s free cash flow was negative $8.9 million or a revenue decrease of 8.9%. In Q3 2018, it was negative $18.6 million or a loss of 12.4%.
By comparison, Wayfair’s free cash flow in the third quarter was negative $180.9 million. In Q3 2018, it was negative $58.8 million. In both absolute dollars and margins, Blue Apron’s financials are getting better while Wayfair’s are getting worse.
As I’ve argued in the past, as long as Wayfair continues to spend more each quarter acquiring new customers, it’s never going to make money. A side comparison with Blue Apron shows why.
In Q3 2019, Wayfair spent $14.80 in advertising per active customer ($281.8 million divided by 19.1 million active customers), 20 cents more than in the same quarter a year earlier. By comparison, Blue Apron spent $31.35 in marketing per customer ($12.1 million in marketing divided by 386,000 customers), $4.75 less over the same period a year earlier.
Blue Apron is doing a much better job than Wayfair getting its cash flow in line with its revenues.
Can it do better? You bet it can.
If profitability is the name of the game, Wayfair’s going in the wrong direction relative to Blue Apron.
The Bottom Line on APRN Stock
At this point, I see APRN stock as a much smarter bet than Wayfair. Is Blue Apron stock free of risk at $7.30? Not by a long shot.
However, if you’re an aggressive investor and can afford to lose a few thousand, I have no problem recommending APRN stock as the better bet.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.