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Can Blue Apron's New CEO Execute a Hail Mary Play?

Leo Sun, The Motley Fool

Blue Apron (NYSE: APRN) recently appointed Linda Findley Kozlowski, the former chief operating officer of Etsy (NASDAQ: ETSY), as its new CEO. Kozlowski is a 25-year industry veteran who also previously worked at Evernote and Alibaba.

Kozlowski will be Blue Apron's third CEO since the meal kit maker went public less than two years ago. Cofounder Matt Salzberg was the company's CEO during its IPO, but resigned just six months later. His successor, Brian Dickerson, struggled to curb Blue Apron's steep declines in revenues and customers, which culminated in his recent resignation. Cofounder and chief technology officer Ilia Papas also recently stepped down.

A Blue Apron meal kit.

Image source: Getty Images.

Despite those challenges, Kozlowski claims that it's "an exciting time to join Blue Apron" and notes that it "made significant product, platform and operational advancements" over the past year. But can Kozlowski really save Blue Apron, which now trades at a 90% discount to its IPO price?

What happened to Blue Apron?

Blue Apron's business growth decelerated due to two main problems. First, its meal kits were easy to replicate, since they were basically boxes of overpriced groceries. Second, its prices were too high relative to those of other precooked meals, delivery, or takeout options -- all of which required less prep time and cleanup. Here's how badly Blue Apron's growth deteriorated over the past year:

YOY growth

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Customers

(15%)

(24%)

(24%)

(25%)

(25%)

Revenue

(13%)

(20%)

(25%)

(28%)

(25%)

Source: Blue Apron quarterly results. YOY = year-over-year. 

Blue Apron's average order value and revenue per customer improved sequentially and annually last quarter, but those anemic gains couldn't offset its ongoing loss of customers. On the bright side, Blue Apron's losses are narrowing. Its adjusted EBITDA loss narrowed year over year from $19.7 million to $7.8 million last quarter, and its net loss narrowed from $39.1 million to $23.7 million.

However, those improvements were attributed to reduced operating expenses, especially in the marketing department. That's a questionable strategy, since it cripples Blue Apron's ability to counter aggressive rivals like HelloFresh.

Instead of fighting back with marketing campaigns, Blue Apron signed partnerships with companies like Airbnb, Grubhub (NYSE: GRUB), and Walmart's Jet.com to increase its brand exposure. However, those partnerships mainly focused on urban areas, which were already saturated with takeout and delivery options. It started selling cheaper $8 meal kits that excluded the meat and vegetables earlier this year, but that effort merely complicated the meal prep experience.

A Blue Apron meal kit.

Image source: Getty Images.

How Kozlowski might save Blue Apron

Kozlowski served as Etsy's COO for nearly three years. During that period, the online artisan marketplace defied critics who claimed that Handmade at Amazon (NASDAQ: AMZN) would render it obsolete. It accomplished this by offering merchants lower fees and more freedom to promote their products, and its revenue rose 21% in 2017 and another 38% in 2018.

Etsy's ability to thrive in Amazon's shadow offers Blue Apron's investors a glimmer of hope. However, Etsy had a first mover's advantage in the artisan space, and it retained that natural moat against Amazon. Blue Apron's situation is different -- it enjoyed a first mover's advantage, but lost it as other rivals entered the market.

In my opinion, Kozlowski should abandon Dickerson's strategy of cutting operating expenses to narrow its losses. At this point, Blue Apron needs to launch more aggressive marketing campaigns to win back customers.

Blue Apron reduced its long-term debt by 34% annually to $82.6 million at the end of 2018, but I think it can afford to take on more debt to fund acquisitions. Grubhub, for example, became the largest food delivery platform in America by gobbling up a long list of smaller platforms.

HelloFresh overtook Blue Apron in the U.S. market last year, according to Earnest Research. If Blue Apron wants to regain its crown, it should consider buying out smaller platforms, scaling up its business, and worrying about profits later. It could even consider buying companies in adjacent markets, like precooked foods or small restaurants, to diversify its core business away from meal kits.

It's still a Hail Mary pass

Hiring Kozlowski was a smart move, but Blue Apron probably can't be saved without an immediate reversal of its previous strategies. Investors who can stomach that risk might be well rewarded, since the stock trades at about a third of its estimated sales this year, but I'd steer clear of this stock until Kozlowski reveals her long-term plans.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Grubhub and Amazon. The Motley Fool owns shares of and recommends Amazon and Etsy. The Motley Fool recommends Grubhub. The Motley Fool has a disclosure policy.