With shares down more than 90% since their IPO, is there any reason to buy Blue Apron (NYSE:APRN) stock? The once-trendy meat kit brand peaked years ago.
Since 2017, sales have slipped from $881 million to just $501 million for the trailing twelve-months. Profitability? Forget about it. The company has lost money every year it’s been a public company. With this in mind, there’s very little to love about Blue Apron stock.
But what if the company can stabilize? With high fixed costs, Blue Apron has its work cut out for it, and outside of a private equity/strategic buyer takeover, I don’t see Blue Apron stock moving higher anytime soon. Yet with fairly high short interest, shares could skyrocket in the event of a short squeeze.
Is a short squeeze likely? The jury’s still out on that one. Other moribund companies like Rite Aid (NYSE:RAD) have seen massive rallies thanks to short squeezes. But the difference with Blue Apron is that not even a booming economy can fix its fortunes. With sales continuing to fall, it’s hard to see light at the end of this tunnel.
Blue Apron Stock Probably Can’t Fix Itself
It’s temping to try and find a contrarian play with Blue Apron stock. Shares have fallen from above $20/share a year ago to just $3.98/share at the close February 10. Yet, there’s good reason why investors keep bidding down shares.
You could say meal-kits are a passing fad. But, as this Seeking Alpha contributor discussed back in January, competitors like HelloFresh (OTCMKTS:HLFFF) continue to grow. In other words, it’s execution, not industry headwinds, that are dragging down Blue Apron stock.
Is there a pathway to a turnaround? With high fixed costs, this does not seem likely. As InvestorPlace’s Luke Lango discussed January 30, Blue Apron has fixed operating costs around $215 million. With gross margins holding steady between 35-40%, any upside in Blue Apron stock is likely contingent on revenue improvement.
There are ways Blue Apron could rein in costs. But the one thing Blue Apron can’t touch is marketing. Skimping in this area would accelerate their decline. With little economic moat, the company’s brand equity is a melting ice cube without aggressive marketing.
With an organic turnaround a long-shot, how about strategic alternatives? In other words, could private equity, or a strategic buyer, step in and make an offer for the company? Assuming a premium, this would move Blue Apron stock higher. Yet this catalyst also appears to be a long-shot.
Private Equity Takeover A Long-Shot Catalyst
During its salad days, Blue Apron stock was talked about as a takeover target. Amazon (NASDAQ:AMZN) was seen as a potential acquirer. But what trendy direct-to-consumer brand hasn’t been seen as an Amazon takeover target? Chalk it up to speculators grasping for straws.
If not Amazon, how about one of Blue Apron’s many competitors? Could HelloFresh be interested in adding Blue Apron as an add-on? With Blue Apron’s dwindling brand equity (when’s the last time you saw a Blue Apron commercial), it may make more sense for the company’s larger peers to wait for them to go out of business.
On the other hand, there may be pathways to upside for a private equity buyer. A private equity owner could aggressively cut non-marketing overhead costs. Take for example real estate leasing costs. They spend $8 million a year to lease offices in New York City. Moving their headquarters to Austin, TX (where back-office functions are located) could shave millions in operating costs. Blue Apron also leases more warehouse space than they currently need. While many of these leases extend through the 2020s, subletting the excess space could move the needle in terms of cost reduction.
A private equity buyer could also roll-up similar business into Blue Apron, scaling it into a profitable enterprise. Yet, I myself could be grasping for straws with this scenario. Private equity may have $1.5 trillion in “dry powder,” but that doesn’t necessarily mean they’ll help rescue holders of Blue Apron stock.
Stay on The Sidelines Until Earnings
Given’s management’s track record, don’t expect Blue Apron stock to turn itself around. Strategic alternatives such as a private equity takeover are likely the best bet to salvage shareholder value. But, as mentioned above, even strategic alternatives are a long-shot catalyst.
Yet, I’m on the fence whether Blue Apron stock will go higher or lower. The company announces earnings February 19. If results are not as bad as expected, shares could move higher as shorts cover their positions. Conversely, continued bad results could send shares to even lower price levels.
On the long side, Blue Apron may be a opportunity at lower prices. Perhaps at the $2-$3 price level. But until then, I’m staying on the sidelines with Blue Apron stock.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.