Everyone's favorite home meal-kit service Blue Apron (NYSE:APRN) filed to go public this month. The company has been growing quickly, increasing revenue 10 times from 2014 to 2016, but that pace is starting to slow significantly in 2017. Blue Apron's revenue grew just 42% in the first quarter this year.
But the revenue growth slowdown is just the tip of the iceberg. Some of the data revealed in Blue Apron's S-1 filing present a worrisome trend that potential investors need to be aware of.
Revenue per customer is tanking
Blue Apron management breaks down its average revenue per customer in each quarter dating back to the beginning of 2015. Last quarter, it brought in just $236 per customer, which is on the low end of the metric over the last two years.
The low number may be explained by an increase in competitive promotional activity taking some business away. Management mentioned promotions in the third quarter last year that drove down average revenue per customer and average orders per customer. It also said the first quarter is seasonally strong, so it would make sense for the competition to spend heavily to promote their own meal-kit services in the first quarter.
The two factors affecting revenue per customer are average order value and orders per customer. Both declined year over year in the first quarter. Orders per customer fell 9% from 4.5 to 4.1. Average order value declined 3.5% to $57.28.
Some may expect those metrics to decline as Blue Apron is still in rapid customer growth mode and it's bound to bring in plenty of new customers that test the waters and decide it's not for them. That could easily explain the declines in orders, average order value, and revenue per customer.
But marketing efficiency is declining
Any way you look at it, Blue Apron isn't getting nearly as much out of its marketing spend as it once did. The company's marketing expense more than doubled in the first quarter.
Naturally, with more customers Blue Apron has more money to spend on marketing its service. But it just posted its highest-ever quarterly marketing spend per customer by a wide margin. It's not exhibiting much leverage there.
What's more, Blue Apron's customer acquisition costs are climbing. It says its cost per customer is just $94 in its S-1, but that's based on its marketing spend per new customer from 2014 through 2016. Looking at just the last quarter, Blue Apron spent $386 per new customer. The number is actually worse if you look over the last 12 months -- $463 -- as it managed to lose some customers in third quarter with all the competitive pressure.
Blue Apron has already picked the low-hanging fruit, and its cost per customer is rapidly trending higher. Meanwhile, its revenue per customer is getting worse. In other words, it's having a lot of trouble scaling.
Shrinking gross margin is another bad sign
The last notable metric that investors need to pay attention to is Blue Apron's gross margin. It contracted about 3 percentage points in the first quarter to 31%. Management is still optimistic there's room for improvement, though. "We expect such expenses to decrease as a percentage of net revenue over time as we continue to scale our business," according to the S-1 filing.
But the year-over-year decline indicates Blue Apron may have exhausted some of the efficiencies in packaging and warehousing as well as any advantages yielded by unit economics (i.e., bulk buying). What's more, that gross margin contraction came during a period where food prices declined.
All of these trends at Blue Apron indicate that the competition is starting to get to the company. It explicitly blamed competition for its weak results in the third quarter last year, and it wouldn't be a surprise if it's a theme that pops up in Blue Apron's future. There's very little protection against competing home meal-kit services, and if a big brand comes in to compete, it could cause these weakening trends to accelerate.