From first to last, hero to zero. That's the story so far of Blue Apron (APRN +0.00%), the meal-kit delivery service that was once one of the most highly-anticipated IPOs of 2017 but quickly became a market pariah.
Less than two months after going public, shares trade at about half their IPO price, and questions abound regarding whether it can survive for very long. While its disastrous debut has likely killed the chance of competing services going public for a long time, let's take a look at whether there's hope Blue Apron can be profitable.
Data source: Blue Apron quarterly SEC filings. Chart by author.
A unicorn loses its wings
Not long ago, Blue Apron boasted a valuation over $3 billion, thanks to its first mover advantage and impressive growth. But the company reported sales growth of just 18% last quarter. That's down from the 42% pace recorded at the beginning of the year, and dramatically below the 175% growth notched in the prior-year quarter.
Whenever growth decelerates so quickly, that should be a red flag for investors. What does this rapid loss of momentum indicate? Are headwinds like competition already changing the investment thesis? Investors ought to consider getting out of a stock when they see such a stark reversal of fortune.
Can't take the heat
Right from the start, Blue Apron's IPO filings were filled with warning signs. First-quarter revenue growth of 42% might have seemed robust, but in the year prior, it reported a 254% sales expansion.
And the latest results marked the first time revenue failed to log sequential growth, falling from $245 million in the first quarter to $238 million. Factor in a loss of 93,000 customers over the same period, and a year-over-year decline in average order value ($58.81 vs. $59.40), orders per customer (4.3 vs. 4.4), and average revenue per customer ($251 vs. $264), and the picture gets even worse.
Image source: Blue Apron.
Other indications of ongoing weakness include a net loss of $31.6 million during the quarter compared with a profit of $5.5 million a year ago, and adjusted losses before interest, taxes, depreciation, and amortization of $23.9 million versus adjusted EBITDA of $8 million last year.
To hold its throne atop the meal kit industry, Blue Apron has also been spending heavily to retain customers and win over new ones -- acquisition costs have surged from $94 to over $400. Blue Apron has contested the latter figure and how it's calculated (dividing new customers by market spend over the same period), but any way you cut it, substantial marketing expenses aren't generating the same returns they used to for the company.
Too many cooks
As if things weren't challenging enough for the company, it now seems all but certain that Amazon.com is entering the meal kit delivery race in a big way, backed up in part by its acquisition of Whole Foods Market.
Recently, the e-commerce giant filed for a trademark with the U.S. Patent & Trademark Office for a service it describes as, "We do the prep. You be the chef." And last month, it performed a soft launch of the service, offering 17 different meals to members of its AmazonFresh grocery delivery service.
Now, with growth stalling and competition rising, the levers management can pull to boost profitability will become increasingly ineffective. Even with the stock trading at its lowest point since the IPO, investors must consider whether the promise of future earnings is one this company can ultimately keep.
