Weak Earnings Imply Blue Apron Botched Its Covid-19 Tailwind
Amid the Covid-19 pandemic, struggling meal kit maker Blue Apron (NYSE:APRN) was given the gift of a lifetime — a world wherein consumers were so afraid to go into grocery stores, they rushed to sign up for meal kit services like Blue Apron. This enormous tailwind is largely why APRN stock soared from $2 to nearly $30 seemingly overnight back in March.
Source: Roman Tiraspolsky / Shutterstock.com
Seven months later, it appears Blue Apron has botched this potentially company-saving tailwind.
The meal kit maker just reported third quarter numbers, and while the headline numbers look good — revenues and profits beat expectations, and revenues rose 13% year-over-year — the underlying trends hint at decelerating business momentum, most notably marked by a 10% drop in customers from the second quarter.
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That’s no good.
To be sure, there’s still an opportunity here for Blue Apron to patch things together and get on the right side of the Covid-19 food delivery tailwind. But, for now, management appears to be executing poorly, even in the perfect operating environment, and the outlook for profitable growth over the next few years is getting bleaker.
Until management starts executing and that outlook perks up, APRN stock will remain weak and overly risky — i.e. not the type of stock you want to own.
Blue Apron’s Shaky Earnings
Don’t be fooled by the headline revenue and profit beats. Blue Apron’s third quarter print was unmistakably shaky, and that’s why APRN stock plunged in response.
The biggest concern, of course, is that Blue Apron lost customers in the quarter. That’s such a surprise that it’s worth repeating. In the perfect operating environment — one wherein grocery stores operated at limited hours, employees were working from home, and consumers remained partially in quarantine, bored out of their minds and looking for hobbies to pick up (like cooking) — Blue Apron lost customers.
The company’s customer base dropped 10% quarter-over-quarter, equating to a loss of 39,000 customers from the second quarter.
CEO Linda Findley Kozlowski tried to pin the drop in customers on “seasonality“. But if we back out all the noise, Blue Apron ended 2019 with 351,000 customers, and today has 357,000 customers. Thus, through the whole Covid-19 pandemic — again, arguably the biggest tailwind this company could’ve possibly imagined — Blue Apron has added just 6,000 net total customers. And that number is dropping. By the end of the year, it may be zero.
That’s abysmal. There’s no other way to put. That’s just a really poor showing.
Drilling deeper, the bigger problem is that without customers, there aren’t any profits in this slim margin business model.
In the second quarter, with nearly 400,000 customers, Blue Apron was able to show a slight profit. But in the third quarter, with the customer base dropping back basically to where it was at the end of last year, Blue Apron’s bottom-line fell back into the red.
No customers. No profits. No value. That’s how Wall Street viewed Blue Apron’s third quarter earnings report, and as much as I hate to say it, the Street isn’t wrong here.
Missing the Trend
Blue Apron’s poor third quarter earnings are made that much worse when you stack the company up next to competitors.
HelloFresh — essentially the German version of Blue Apron — recently reported preliminary third quarter numbers that included 120% year-over-year revenue growth in the quarter.
Blue Apron grew revenues by 13% in Q3.
So, it’s not like the meal kit market isn’t still booming. It is. Consumer behaviors have permanently shifted, and going forward, meal kits will be a larger part of society than they were before the pandemic.
But Blue Apron is completely missing the trend. While competitors’ businesses are doubling in size, Blue Apron is losing customers.
Broadly, this tells me that management is just misfiring right now. And, considering the company isn’t exactly flush with cash — cash and equivalents measured less than $60 million at quarter end — this management team that is misfiring today is going to have to be exceptionally innovative in order to steer Blue Apron back on the right path over the next few quarters.
Possible? Yes.
Likely? No.
And that’s why APRN stock — once a promising turnaround candidate — is now better off being left alone.
Bottom Line on APRN Stock
The meal kit market has permanently accelerated thanks to Covid-19. But the company reaping all the rewards of this acceleration is HelloFresh, while Blue Apron has seemingly managed to entirely botch the Covid-induced, meal-kit-surge tailwind.
With respect to APRN stock, that means this is now a “show me” stock. Wall Street isn’t going to give Blue Apron the benefit of the doubt anymore, and indeed, investors are just going to assume the worse.
So, in order for APRN stock to reverse course and head higher, management is going to have pull a rabbit out of its hat to impress Wall Street in the coming months.
I’ve seen it happen before. But it’s not something I’m willing to put much confidence in at this point in time — so avoid APRN stock for now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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