What happened

Shares of meal-kit company Blue Apron (NYSE:APRN) jumped on Friday despite no news. The stock has been hammered since the company went public last year, down 78% from its peak, and down about 50% over the past three months. Friday's rally may just be a dead cat bounce after a long and painful decline. Shares were up about 10.6% at 11:40 a.m. EST.

So what

Blue Apron's results since going public have been nothing short of abysmal. During the fourth quarter of 2017, revenue tumbled 13% year over year to $187.7 million despite the company spending 13.4% of revenue on marketing. The number of customers decreased 15% year over year, and the company booked a net loss $39.1 million.

A Blue Apron box filled with various vegetables next to a package of salmon and goat cheese.

Image source: Blue Apron.

Blue Apron has two main problems. First, its business model is fundamentally flawed. Blue Apron's meal kits, comprised of ingredients and recipes that require prep work and cooking, are priced at $9.99 per person per meal. That's dramatically more expensive than buying ingredients for a comparable meal at the grocery store, and it's similar to the cost of a meal at a fast-casual restaurant. In other words, there's no value proposition whatsoever.

Blue Apron's second problem is competition. Not only are there many other meal-kit companies that offer the same service, but retailers are getting into the market. Walmart is launching new prepared meals and meal-kit options this year, and Kroger introduced meal kits of its own in some markets last year. Even Weight Watchers is jumping in, with plans to launch branded meal kits at grocery stores.

With grocery chains able to sell meal kits in-store or through pick-up and delivery services, Blue Apron is at a significant disadvantage.

Now what

Friday's rally provides some relief for Blue Apron investors, but the company has deep, possibly unsolvable problems. It's hemorrhaging customers despite heavy marketing spending, an indication that customers are trying and then bailing on the service. That's not surprising given the restaurant-level pricing of its meals.

Even though Blue Apron stock has already fallen so far, it could keep tumbling if the company's results don't improve.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool is short shares of Kroger. The Motley Fool has a disclosure policy.