There is no question that one of the biggest beneficiaries of the novel coronavirus outbreak is Blue Apron (NYSE:APRN), an early entrant in the meal-kit delivery game. As a result of the stay-at-home orders, Blue Apron stock has gained over 330% in the past month alone.
Let’s face it: if Blue Apron couldn’t make a go of it at a time when they’ve got an entire nation captively sitting at home, they’d be closing up shop, pronto.
Louis Navellier recently put Blue Apron on his buy list because he believes the stay-at-home lifestyle is going to stick around. I just don’t buy it.
Stay at Home Is Not the New Normal
I have a cousin in the New York City area who’s a very busy senior executive for a large company. She travels a bunch. However, because of the coronavirus, she’s operating out of her home. Since her home office is an easy commute to her kitchen, she’s been cooking a different meal every day, as a way to stay sane in a locked-down world.
I applaud her effort. She’s revisiting those bygone days earlier in her career when she had time to cook. But make no mistake, once the world gets back to work, she’s going to hop back on the career treadmill, and the daily meal will become a thing of the past — a pleasant memory.
Now, unless my cousin is the only one in the entire U.S. experiencing this temporary change in lifestyle, there are going to be plenty of people who’ve jumped on the Blue Apron bandwagon as a result of Covid-19 that will jump right back off.
Two years ago, having just moved to a new town, my wife and I decided to give HelloFresh a try. After the trial period, we decided that the recipes weren’t anything special that we couldn’t come up with on our own, so we didn’t continue.
I find it hard to believe that a whole new cohort of people is going to commit to making Blue Apron meals permanently. I just don’t buy it.
Habits might have changed as a result of the coronavirus, but they are temporary. Unless the whole world decides restaurants aren’t worth going to anymore, Blue Apron and the rest of the meal-kit companies are going to be back to square one.
The same investors who’ve pushed Blue Apron stock from $2.28 in mid-March to over $11 as I write this on Good Friday, are going to abandon ship once they realize that both the newfound revenues and potential profits are illusory.
At the end of the day, if Blue Apron could provide prepared meals using their recipes at a similar price to what they’re currently charging, then you’d have a sustainable business. In an information age when I can teach myself how to cook online, I fail to see how Blue Apron is going to be able to scale its business profitably.
For several years, I’ve been reading how Wayfair (NYSE:W) is the greatest thing since sliced bread. How its e-commerce platform was going to capture a significant share of the household furniture and home goods market. Unfortunately, investors didn’t care about profits. Growth was it.
With blinders on, Wayfair stock went from an October 2014 initial public offering price of $29 to $170 by March of last year. And then the wheels fell off as it became apparent that Wayfair might never make money.
In 12 months, Wayfair’s stock fell from over $170 to a low of $21.70 in mid-March. I warned investors on several occasions that Wayfair was a dud.
And now, as Wayfair stock makes a resurgence due to the coronavirus, I’m here to tell you that much like Blue Apron, this isn’t going to be something permanent. People’s habits will go back to normal and Wayfair will resume its struggle to make money.
But in the meantime, its executives have put on a brave face.
“Wayfair’s e-commerce model is uniquely suited to serving customers’ very real needs at this challenging time,” CEO Niraj Shah said. “We are encouraged by our increasing sales momentum, yet remain highly focused on our plan to rapidly reach profitability and positive free cash flow.”
Wayfair’s free cash flow in 2019 was -$600 million on $9.1 billion in revenue. I wish them luck. But I digress.
Blue Apron CEO Linda Findley Kozlowski was equally enthusiastic about the company’s fortunes in its fourth-quarter 2019 press release.
‘We continue to believe that we have the right strategy to drive our resumption of growth as we work to launch additional new capabilities and test new product offerings,” said Kozlowski. “Our strategic alternatives process, together with our cost optimization initiatives, is intended to best position the company for the future, including to support our growth strategy.”
In the past five years, Blue Apron’s revenues have gone from $340.8 million in 2015 to a high of $881.2 million in 2017 to $454.9 million in 2019. It grew revenues by 33% during this period. That’s a perfectly fine number if you’re making money, but when you’re not, growth has got to be much faster.
Dan McCarthy, assistant professor of marketing at Emory University’s Goizueta Business School, recently told Yahoo Finance that this newfound business isn’t the answer.
“The amount of repeat business they were getting was not enough to sustain their business,” McCarthy said in a phone interview. “It’s likely delaying the inevitable.”
In this respect, Blue Apron is very much like Wayfair.
The Bottom Line on Blue Apron Stock
I will say this about Blue Apron. It’s managed to reduce how much negative cash flow it generates annually and that’s going to make it easier to hang in there longer.
However, if you bought between $2 and $3, you ought to sell now. And if you’re thinking of buying above $10, you ought to think twice. That buy won’t end well.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.