Blue Apron (NYSE:APRN) is one of the most hated stocks on the market. The meal kit maker went public at $10 last June, but it now trades at just above $2. And even after that dramatic decline, 36% of its shares were still being shorted as of April 26.

Yet shares of Blue Apron recently rallied after the company released its first-quarter report on May 3. Its revenue fell more than expected, but its net loss narrowed both annually and sequentially. Do those flickers of life indicate that Blue Apron is ready to run?

A Blue Apron meal kit.

Image source: Blue Apron.

A closer look at the first quarter

Blue Apron's revenue fell 20% annually to $196.7 million during the quarter, missing estimates by $0.6 million. Its customer count fell 24% annually to 786,000 due to a "deliberate pullback" in its marketing spend in the second half of 2017, but grew 5% sequentially.

Its average revenue per customer rose 6% annually and less than 1% sequentially to $250. Its 4.4 orders per customer also marked an improvement from 4.3 in the fourth quarter and 4.1 a year ago.

Its average order value dipped 1% annually and 2% sequentially, however, indicating that Blue Apron's higher revenues per customer were driven by more orders per customer offsetting its lower revenues per order. Those figures would indicate that Blue Apron's customer base is gradually stabilizing.

Blue Apron reduced its operating expenses by 24% annually to $226.6 million, driven by layoffs, cost cutting measures, and operational improvements at its fulfillment centers. Those improvements helped it narrow its adjusted EBITDA loss from $46.3 million in the prior year quarter to $17.2 million. It also marked a sequential improvement from its adjusted EBITDA loss of $19.7 million in the fourth quarter.

Its net loss narrowed from $52.2 million a year ago and $39.1 million in the previous quarter to $31.7 million, or $0.17 per share, topping estimates by seven cents. However, Blue Apron's cash and equivalents still dropped from $228.5 million at the end of 2017 to $203.5 million.

A Blue Apron meal kit.

Image source: Blue Apron.

Countering the bears with Costco

Wall Street expects Blue Apron's revenue to fall 5% this year as its earnings climb 57% on tighter cost controls. During the conference call, CEO Brad Dickerson reiterated the company's goal of achieving "double-digit revenue growth with break-even adjusted EBITDA" by 2019.

Blue Apron plans to counter bigger challengers like Amazon and Walmart by signing more retail partnerships with brick-and-mortar players that want to sell meal kits. Costco (NASDAQ: COST) is notably Blue Apron's first major partner.

Costco recently launched a pilot program that offers Blue Apron meal kits in select markets across the Pacific Northwest and San Francisco Bay Area. Dickerson believes that the partnership will "expand" Blue Apron's total addressable market, while opening its doors to "further integration" with Costco.

The partnership isn't exclusive, since Costco also sells other meal kits, but Stifel analyst Scott Devitt notes that the partnership could help Blue Apron "expand its geographic reach in a cost effective way." Costco's defensible brick-and-mortar bulwark against Amazon and Walmart could support Blue Apron's comeback. If other retailers follow Costco's lead, Blue Apron might continue reducing its operating expenses as it grows it sales again.

A potential takeover target?

Blue Apron's leading position in the U.S. meal kit market, its stabilizing customer base, narrowing losses, and partnership with Costco, all make it a more lucrative takeover target for potential suitors. The company has a market cap of less than $500 million, but it's still expected to generate $841 million in sales this year.

Buyout buzz alone isn't reason enough to pick up Blue Apron, but investors should note that Walmart is frequently cited as a potential buyer. If Blue Apron's partnership with Costco is fruitful, the warehouse retailer might be another logical suitor. But Blue Apron is still a tough stock to recommend, because its core business remains on shaky ground. The company is making some smart moves, though, and investors shouldn't dismiss its chances at a surprising comeback.

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.