Wayfair Got Punished for Its Same Old Story; Blue Apron Keeps Singing the Blues

In this Motley Fool Money podcast segment, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Total Income's Ron Gross try to explain why the market seemed to lose some patience with Wayfair (W -0.02%) last week after an earnings report that was much like its previous few -- and revenue is up 50% year over year. Investors may have tempered their enthusiasm, but the growth story still looks compelling. Blue Apron (APRN), though, after six weeks as a public company, is looking less and less appetizing by the day.

A full transcript follows the video.

This video was recorded on Aug. 11, 2017.

Chris Hill: Wayfair's second-quarter loss was smaller than expected, and revenue grew nearly 50% from a year ago. This is what we've seen for a bunch of quarters now, Jason. Why did the stock take a hit?

Jason Moser: I think it had a nice run into this year. So the market, I think it makes sense to pull back a little bit, just because this is still a growth company that is yet to be profitable. But I think the story with Wayfair is still pretty simple. It's a matter of how much slack the market is going to give these guys as they continue to grow. It does seem, all in all, they are going to continue to get that slack. When you look at the metrics, it seems that all of them really are pointing in the right direction. There are more users buying more things, they're making more money, and it seems like the big metric that we always focus on, the percentage of orders from repeat customers, that grew from about 57.6% a year ago to 61.3% in this most recent quarter. That means they're not having to pay so much to acquire new customers, because when you get those repeat customers, they tend to reward you with more business later on, as the business grows. 

So gross margin held steady, another encouraging sign, because gross margin also incorporates all the shipping and fulfillment expenses that Wayfair has to pay. We know those are very expensive. They offer the free shipping for orders of $49 or more, so they're really keying in on the things that customers care about the most. It's a good business. I think we've always wondered how long the market will tolerate the story. It seems they're going to give it a little bit longer, because those metrics continue to show the business is doing the right things.

Hill: Blue Apron has been a public company for six weeks, and every one of them has been bad. The meal-kit delivery service issued its first quarterly report and said, among other things, that Blue Apron will be cutting a quarter of its workforce. That wasn't the only bad number in that report. This is such a train wreck, Matt.

Matt Argersinger: It is. And speaking of bad numbers, you know it's bad when the price of your stock is lower than the cost of your of their meals. I have to give Bloomberg credit for that one; I read that. The big deal here, though, is that they lost customers last quarter. I'm stunned by that. The number of customers was down by 9% from the previous quarter. And that's despite them spending tens of millions of dollars on marketing now, especially all the cash that got from the IPO to do that. Revenue was up 18% year over year, but SG&A expenses, most of which was in advertising, were up 49% year over year, yet they lost customers. I have to say, it's a very tough road for them, and you almost wonder why they went public.

Hill: To your point about the spending on marketing, one of the things they said in this report was, they're going to be cutting back on marketing even further. Which begs the question, Ron, where are they going to get new customers?

Ron Gross: They will not be getting new customers. I think that's the problem. I think you have two things going on here. I think you have a business-model problem, which, quite frankly, you don't really want to be an owner of a stock that has a business-model problem. And exacerbating the mess is, they actually had an operational problem with a new facility they're trying to open. So they're getting hit on both sides. Their overall business is struggling, and now they have extra costs because they can't get their act together on the operational side. It's a storm of badness.

Argersinger: Yeah. You're burning cash, and Wall Street hates that, but at the same time you have to spend that cash to bring in customers, and they're not. So this is a downward spiral.

Hill: A year from now, is Blue Apron a standalone public company? 

Argersinger: I don't think they'll go bankrupt within a year. Whether they're taken private by someone who just wants to take a risk, maybe. But I don't think so.