Blue Apron Holdings Inc Stock Is Both Too Large and Too Small
Problems have plagued Blue Apron Holdings Inc (NYSE:APRN) ever since it launched its IPO. Low margins and the entrance of large competitors into the market have left Blue Apron stock with no obvious avenues for profitability.
Now, the stock is failing to attract buyers, even as it starts to hover at record lows. While investors can make money with meal kits, Blue Apron is both too large and too small to succeed in this no-moat business.
No-Moat Blue Apron Remains Too Vulnerable
Blue Apron stock has suffered a near-continuous fall since its IPO last year. The equity bounced when the company hired a new CEO, but that reprieve proved temporary. The stock price has now fallen below $2 per share. Given the low margins and the competitive landscape, one has to assume APRN stock will wipe out its investors.
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In other words, little has changed since I declared APRN a “recipe for shareholder starvation” last fall. Like most recipes today, the business model for APRN stock can be copied by nearly anybody. And it seems grocers who could buy and sell Blue Apron with their petty cash allocations have decided to replicate it instead. Amazon.com, Inc. (NASDAQ:AMZN), Walmart Inc (NYSE:WMT), Kroger Co (NYSE:KR), in addition to Hello Fresh and Weight Watchers International, Inc. (NYSE:WTW) stand as just a few examples of its numerous competitors.
Many will blame bad decisions by the management team. I’m sure an audit could find areas where funds could have been better spent. Also, small companies such as Square Inc (NYSE:SQ) or Intuit Inc. (NASDAQ:INTU) thrive in the face of much larger competitors all the time.
However, SQ and INTU offer unique product offerings that remain difficult to copy. Blue Apron offers nothing unusual. Most American have easy access to groceries. Professional shoppers exist just about everywhere. Consumers find recipes online with ease. Any business can put these ingredients together and sell meal kits. But in almost every case, it can rise to little more than a low-margin, commodity business.
Blue Apron Stock Has Found the ‘Unsweet’ Spot
Low margins have plagued Blue Apron stock from the beginning. To succeed with such margins requires the resources of a Walmart or a Kroger to reach enough customers and offer sufficient volume. In my opinion, large companies such as these are the only way to invest in this business through the stock market successfully.
Despite lacking a moat, making money in this business remains possible. One could succeed in this business operating in a locality only and sourcing farm-fresh ingredients from the surrounding area. The vast resources of restaurant empires such as Darden Restaurants, Inc. (NYSE:DRI) or Brinker International, Inc. (NYSE:EAT) have been unable to displace the mom-and-pop restaurant. A local meal kit business could gain the same type of following.
Or, investors could wait for APRN to declare bankruptcy. They could then buy pieces of its logistics infrastructure for pennies on the dollar. However, these investments, if they become worthwhile at all, will likely not show up on a stock exchange.
Final Thoughts on Blue Apron Stock
The meal kit business stands as a no-moat commodity business that Blue Apron stock cannot sustain on its own. Ingredients such as food, recipes and the ability to combine both elements are abilities that almost anyone can copy. Because of this, meal kits stand as a low-margin business that can only work for America’s largest grocers. Unfortunately for owners of APRN stock, the company has few options available to make this business succeed on its own.
Retail investors can only profit indirectly from this business by buying stock in a large company. For this strategy, I like KR stock, as it offers growing profits with a relatively low price-to-earnings ratio.
Otherwise, investors must enter this field through private purchases or a small, locally-operated business to profit. However, neither constitute stock-based investments. Unfortunately for Blue Apron stock investors, the company lacks both the local niches and the support from large grocers to make this business work.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
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