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Why Blue Apron Stock Might Not Be Around for Much Longer

Luke Lango

Meal kit maker Blue Apron (NYSE:APRN) just reported second-quarter numbers, and they were nothing short of awful.

While earnings did narrowly top expectations, revenue missed expectations and dropped a whopping 25% year-over-year. Worse yet, the number of customers using Blue Apron dropped 24% year-over-year, continuing what has been a multi-quarter bleed in customers ever since the company decided to cut back on marketing spend.

In response to those bad numbers, APRN stock is tumbling. As of this writing, it is down 20% and right near all-time lows.

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The unfortunate reality for APRN stock at this point in time is that the company is not investment-worthy. With the customer base in free-fall and huge competition headwinds on the horizon, it doesn’t really matter how much fat management cuts from the operating model. The longevity of this business in a very crowded space is a huge question mark.

As such, I think APRN stock is in a must-avoid situation until the customer base stabilizes. Even at $2, this stock isn’t a bargain if the customer base keeps falling.

Here’s a deeper look.

Blue Apron’s Quarter Highlights Continued Customer Struggles

Blue Apron’s second quarter report highlighted problems with Blue Apron’s customer base that have been around for several quarters now.

In order to cut costs and become profitable, Blue Apron decided a few quarters back that it would be best to decrease marketing spend and focus on building a valuable business among the current user base.

Unfortunately, that plan hasn’t worked out. Indeed, over the past several quarters, gross margins have improved and the marketing expense rate has dropped dramatically. But the customer base has also dropped dramatically. And in a hurry, too.

Just five quarters ago, Blue Apron’s customer base was growing at a 20%-plus clip. This past quarter, the customer base declined at a 20%-plus clip. By the same token, just five quarters ago, Blue Apron’s revenues were rising by nearly 20%. Last quarter, revenues dropped by 25%.

Clearly, this company cannot retain customers unless it spends big on marketing. But, the company decided to reinvigorate marketing expenditures this past quarter. The marketing expense rate rose from 14.5% to 19.3%. Yet, it did nothing for customer growth. The customer base still fell by 24% year-over-year and 9% quarter-over-quarter despite the increased marketing spend.

In other words, Blue Apron’s second-quarter numbers affirm that this company is up creek without a paddle. No matter what the company does at the current moment, the customer base and revenues drop. That doesn’t imply good things going forward.

Long-Term Outlook Remains Bleak

I really don’t see Blue Apron being around that much longer.

My view on this market is that grocers like Whole Foods, Kroger (NYSE:KR) and Sprouts (NASDAQ:SFM) can make their own meal kits, and make meal kit services like Blue Apron essentially irrelevant. Whatever piece of the meal kit pie is left for Blue Apron, the company will have to split with a million other meal kit startups that do the exact same thing.

In other words, competition will eat Blue Apron alive in the long run. Indeed, it seems like this is already happening. The company has gone from hyper-growth to hyper-declines in just a few quarters because: 1) the meal-kit market matured, and 2) new competitors entered the space.

Going forward, I fully expect the Blue Apron customer base to continue to compress at a 20% rate over the next several quarters. If that does happen, then APRN stock isn’t worth $2 today. Instead, so long as Blue Apron’s customer base continues to fall back, APRN stock is a must-avoid.

Bottom Line on APRN Stock

There was a glimmer of hope in APRN stock last quarter because the company was going to up marketing spend and hopefully reinvigorate customer growth. That didn’t happen. Instead, the company upped marketing spend, and the customer base continued to decline at a 20%-plus rate.

That means that APRN stock, even at $2, could still fall a lot farther.

As of this writing, Luke Lango was long KR. 

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