What a day it’s been for shareholders of Blue Apron (NYSE:APRN). Earlier this morning, shares of APRN stock popped more than 18% higher. This follows the release of the company’s second-quarter earnings report. This move was short-lived, as the stock then fell precipitously, losing all of its gains, and trading down more than 5% in early afternoon trading.
Why the massive turn of events? Well, Blue Apron’s management team announced during its earnings call that it cut 20% of its corporate workforce in July alone. This move coincided with the previously announced FreshRealm transaction.
The company has hoped to move toward a more asset-light model. Previously, the announcement of major job cuts boosted the stock price, so perhaps the thinking was to share more details on how these layoffs have been proceeding. However, the announcement of $1.7 million in charge-offs tied to these layoffs (including severance and other expenses) may have some investors shaking their head. The company anticipates it will save $7 million from these layoffs, but it’s unclear if these cuts are being made too deep.
Let’s dive into what investors may want to make of these earnings, and these layoffs.
APRN Stock Sinks on Latest Round of Job Cuts
In a period of belt-tightening, it’s hard to say how much is too much until things start to hurt. It appears many investors are viewing Blue Apron’s aggressive cost-cutting moves as perhaps too much too fast, given the strength of the labor market and intensity of competition.
Indeed, Blue Apron’s business is slowing, with revenue down 6.1% sequentially and 14.5% year-over-year, despite the average order value increasing significantly. This implies a significant drop off in paying customers, something a subscription business will not want to see. Thus, some cuts are likely warranted.
However, in order for Blue Apron to return to its previous growth-focused ways, investing in growth may be necessary. Granted, it’s hard to do that when the company is losing nearly $50 million a quarter. However, this meal kit company will need to decide if it wants to grow its way out of this hole, or shrink its way to profitability in the near term. Investors appear to be questioning which strategy makes more sense right now.
Personally, my outlook for Blue Apron’s overall business isn’t as bright as many analysts. This is a sector that clearly boomed as a result of the pandemic and saw its overall addressable market skyrocket. However, with Blue Apron’s market size stabilizing, it will be a question of how well the company can hold market share and maintain margins moving forward. Personally, I’m not sure these cuts have been too deep. But the market appears to be providing its opinion on the topic today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
