To be blunt, meal kit maker Blue Apron (NASDAQ:APRN) has been a huge disappointment ever since the company made its Wall Street debut. Once hyped up as the future of grocery shopping and at-home meal distribution, Blue Apron is now a shell of its former self, with barely enough money to keep its doors open.
It should be no surprise, then, that Blue Apron stock has tumbled from a split-adjusted price of $150 in June 2017 to under $5 today. That’s a 97% drop in less than three years.
And the pain likely won’t end anytime soon.
The reality is that the meal-kit market is very niche and very competitive, with very tough economics. Until one of those things changes (i.e. tens of millions consumers start adopting meal kits or the competitive landscape eases dramatically), Blue Apron won’t be able to generate sustainable growth or obtain profits, and Blue Apron stock will keep dropping.
Unfortunately, none of those things is going to happen anytime soon. As a result, for the foreseeable future, Blue Apron stock will just keep going lower.
Blue Apron’s Fundamentals Are Weak
The meal-kit market is defined by far too many services competing for far too few customers.
A few years back, meal kits were supposed to be the next big thing. That never happened. Meal kits are generally too expensive, with portions that are excessively small. They also aren’t that convenient because consumers still have to deal with weekly meal-kit deliveries. And, perhaps above all else, consumers actually like to do their own grocery shopping and their own cooking. Doing those things brings personalization, flexibility, and accomplishment that consumers just don’t get from meal kits.
That’s why, despite being around for several years, meal kits are used by only 7% of the American population, according to a recent Family Food Fix survey. Perhaps even more shocking, 23% of the American population used to subscribe to a meal-kit service, but no longer do.
Thus, spending more money on marketing to get people to try meal kits probably won’t work. Many people did try meal kits, and they didn’t like them, indicating that they will remain a niche product forever.
That’s really bad news for Blue Apron. Moreover, APRN has a ton of competitors, including Home Chef, Green Chef, and HelloFresh. So, a bunch of struggling mea- kit makers are competing over a very small customer pool.
That is not a recipe for success for Blue Apron stock.
Blue Apron Stock Won’t Rebound
The numbers show why Blue Apron stock won’t rebound.
Its annual revenues are around $450 million, and they’re declining. Its gross margins are around 35%-40%, and they’re not rising by much. Its operating expenses are around $215 million.
A 37.5% gross margin on $450 million of revenues equals about $170 million of gross profit. That’s less than the company’s annual operating spending of $215 million.
So, in order for Blue Apron to be profitable, either: 1) its revenue needs to grow substantially without its operating spending going up much, or 2) its operating spending needs to drop substantially without its revenue falling.
Neither of those things is going to happen, given APRN’s highly competitive market.If its operating spending drops, its revenue will likely drop, too because less marketing spending will lead to lower brand awareness and slower customer growth or higher customer losses.
Meanwhile, any increase in its revenue will likely be driven by higher marketing spending. That’s because more spending on marketing will lead to higher brand awareness and higher customer growth or fewer customer losses.
Consequently, I don’t see a realistic pathway now for Blue Apron to generate a profit anytime soon. In the absence of profits, Blue Apron stock will continue to struggle.
The Bottom Line on APRN Stock
Simply avoid APRN stock. This stock has been a loser for a long time, and it will likely remain a loser for the foreseeable future, bogged down by depressed demand drivers, tough competition, and poor economics.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.