The potential of GRUB stock and APRN stock are vast. Americans spent nearly $200 billion on takeout meals last year and an estimated $3.1 billion on meal kits in 2018. Those aren’t small markets. Even better, the growth of both segments is expected to accelerate further over the next few years.
But despite all that growth, investors need to be wary. For Blue Apron and Grubhub, profits will remain elusive, and they may never materialize. Thanks to rising competition, margin compression and changing consumer attitudes, the time for investing in APRN stock and GRUB stock may have expired for good.
GRUB Stock & APRN Stock Aren’t Special
It’s true that how we consume our meals has rapidly changed. Back in 2015, U.S. restaurant sales managed to surpass grocery-store sales for the first time, and we’ve haven’t looked back since. Take out became the standard and meal kit revenue jumped 36% in about a year. That undeniable trend boosted GRUB stock and, to some extent, Blue Apron stock.
But the owners of GRUB stock and APRN stock should take a look at the metals and mining sector if they want to know the fate of their investments.
Commodity makers all go through the same cycle. Prices and demand rise, companies rush into the sector, supply and competition increase, and then companies collapse. Gold, coal, corn, and every other commodity undergo the same process. and that is exactly what is playing out in the “food fad” business.
In a recent letter to the owners of GRUB stock, Grubhub stated that “there are multiple players all competing for the same new diners and order growth,” and “our existing diners are increasingly ordering from multiple platforms.”
GRUB is right. Doordash, Uber’s (NASDAQ:UBER) Uber Eats, Postmates, and others are all competing for the same delivery dollars. And the services are all the same; there’s nothing particularly special about any of them.
What’s worse for GRUB stock is that GRUB’s partners and restaurants have realized this as well. For example, McDonald’s (NYSE:MCD) uses three of the main delivery services for its operations. Wendy’s (NYSE:WEN) is now starting to work with more delivery services. The point is that the low-hanging fruit has been picked clean.
APRN doesn’t exactly have a massive advantage over its competitors and potential competitors either. Like GRUB, Blue Apron operates in a world full of competition. Increasingly, that opposition is coming from grocery stores themselves.
And many of the major grocery store chains are realizing they can sell meal kits without a partner. Kroger has started to offer its own boxed and packaged meal kits, while Wegmans’ customers can design their own kits.
The Proof Is in the Financial Results
We don’t have to look very hard to realize that, for both Blue Apron and Grubhub, the bubble may have burst.
In the third quarter, APRN’s top line plunged 34% year-over-year and 17% quarter-over-quarter. Meanwhile, the firm lost $1.99 per share of APRN stock. That’s after APRN sought to cut its costs. Analysts don’t expect the company to make any sort of money until at least 2023.
The data wasn’t much better for GRUB stock. While the firm did add more active diners to its platform, it’s fighting hard for those customers. As a result, GRUB barely made any profit in Q3, as it was just $1 million or 1 cent per share in the black. That’s down from 24 cents per share a year ago. GRUB’s forward guidance was also abysmal and underscored the challenges of the industry.
Use GRUB and APRN, But Don’t Buy Their Shares
The reality is, despite the growth and convenience of at-home food delivery and meal kits, the sector is quickly becoming commoditized. There are too many players fighting for the same dollars, as reflected by the Q3 results of Grubhub and Blue Apron.
Incidentally, we can guess that Uber Eats isn’t working so well either, based on its parent’s continued mounting losses and the fact that Amazon decided to exit the food delivery business as well.
As a result of these trends, GRUB stock and APRN stock have plunged. GRUB stock dropped more than 43% when it announced its earnings and Blue Apron stock recently underwent a 1-for-15 reverse split.
Perhaps the best advice would be to avoid APRN stock and GRUB stock and use their services instead. Or better still, get in the kitchen and actually cook a meal. Your wallet will thank you either way.
Disclosure: At the time of writing Aaron Levitt held a long position in AMZN.