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Blue Apron: Collateral Damage Between Amazon vs. Walmart

By Leo Sun - Mar 7, 2018 at 9:05PM

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The meal-kit pioneer could be rendered obsolete by the two retail giants.

Shares of meal-kit maker Blue Apron ( APRN 2.54% ) recently hit fresh lows after Walmart ( WMT -1.57% ) introduced its own meal kits. The kits, which cost between $8 to $15, are designed to serve two people. For busier customers, Walmart will also start selling ready-to-heat meals that are heavily meat-based.

Walmart launched third-party meal kits last fall, so the introduction of first-party meal kits wasn't surprising. The move was aimed at taking on Amazon.com's ( AMZN 1.63% ) introduction of meal kits on AmazonFresh, which is now supported by the company's network of Whole Foods stores. Amazon also sells third-party meal kits from Marley Spoon and Martha Stewart.

A finished Blue Apron meal in bowls and plates on a table

Image source: Blue Apron.

In this escalating battle between Amazon and Walmart, Blue Apron seems to have become collateral damage. Its stock now trades about 75% below its IPO price of $10, and the company appears to be quickly running out of options.

What happened to Blue Apron?

Unfortunately, though Blue Apron once had first-mover advantage, the meal-kit market has low competitive barriers and can be easily disrupted by large retailers with superior logistics capabilities -- like Walmart and Amazon.

Blue Apron went public just after Amazon announced its planned takeover of Whole Foods. That move spooked investors, who correctly assumed that Amazon would merge Whole Foods with AmazonFresh to deliver fresh groceries and meal kits. Amazon's intrusion into the grocery space set off alarm bells at Walmart, which then expanded its Walmart Grocery system to support curbside pickup and home deliveries.

Launching first-party meal kits was a natural next step for both retail giants. Meanwhile, Blue Apron's other meal-kit rivals -- like Sun Basket, Green Chef, and HelloFresh -- are still gaining ground. Germany-based HelloFresh has claimed that it will overtake Blue Apron in the U.S. in the near future.

How bad is the damage?

Blue Apron posted a 15% year-over-year decline in customers last quarter. Its average revenue per customer rose $2 annually to $248, but that minor gain couldn't offset its loss of customers.

A package of salmon next to a box containing a Blue Apron meal kit with vegetables, dry noodles, and more inside

Image source: Blue Apron.

As a result, its revenue fell 13% annually to $188 million, marking its first quarter of negative growth since its IPO. It also posted a net loss of $39.1 million, compared to a loss of $26.1 million a year earlier. On the bright side, its adjusted EBITDA came in at a loss of $19.7 million, which marked a minor improvement from its loss of $22 million a year earlier.

Unfortunately, Blue Apron's business remains in a tailspin. It laid off hundreds of employees last October, and CEO Matt Salzberg resigned the following month.

For a while, Blue Apron seemed like a viable takeover target. It's the biggest meal-kit company in the U.S., and has an enterprise value of just $483 million -- which is much lower than the $841 million in revenue that analysts expect it to generate this year. The recent moves by Walmart and Amazon, however, indicate that it's simply easier for retailers to launch competing meal kits rather than buy Blue Apron.

What's Blue Apron's next move?

Things look bleak for Blue Apron, but investors should remember that it finished last quarter with $228.5 million in cash and equivalents. The company could use that cash to buy up smaller meal-kit makers, optimize its supply chain, or launch new initiatives to rebuild its customer base.

However, it's unclear if any of those measures -- even if shrewdly executed -- can counter retail behemoths like Walmart and Amazon entering the meal-kit market. I'd steer clear of Blue Apron until the company can demonstrate ways to fight off its 800-pound challengers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$142.63 (-1.57%) $-2.27
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,561.57 (1.63%) $57.01
Blue Apron Stock Quote
Blue Apron
APRN
$10.09 (2.54%) $0.25

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