Blue Apron (NYSE:APRN) is in the middle of a major shift in strategy. While the company originally saw its total addressable market as anyone with a kitchen, it's decided to narrow its focus to concentrate on high-value customers.
Management noted that 30% of its customers account for 80% of its revenue when it discussed its third-quarter earnings results with analysts last month. The plan is for Blue Apron to take what it knows about those customers and use that information to find more customers just like them.
That could mean continued declines in both total customers and revenue throughout 2019, so how will investors know if the strategy is actually working?
A simple measuring stick
Blue Apron hasn't always been forthright in giving investors the information they need to judge whether management is moving in the right direction. But CEO Brad Dickerson made it clear at a recent investors conference what metrics investors should watch to see if the company is executing.
"The first indication of success in this is going to be that we would get to revenue growth before we got to customer growth," he said. "The idea would be we'd be bringing in higher revenue per customers in and getting rid of the lower revenue per customers."
Watching the rate of change in revenue and the rate of change in active customers is simple enough, but Blue Apron even provides investors with a simple metric for average revenue per customer each quarter. If the strategy to attract high-value customers is working, investors should see that number climb higher over the next year, as low-value customers leave the service and Blue Apron attracts mostly high-value customers who order more often.
Last quarter, Blue Apron's average revenue per customer was just $233. That's a 5% decline from the same period last year. Blue Apron still has a lot of work to do in order to identify its best customers and find efficient marketing channels to attract them to the service without also bringing on low-value (or even negative-value) customers.
Dickerson said investors could see revenue growth as soon as the back half of 2019, and the company might show customer growth by the end of the year as well. He made clear that's just a goal, and it's not definitive by any means.
Things could get murky
Another part of Blue Apron's strategy is to steer its lower-value customers toward its on-demand products. On-demand represents an opportunity for Blue Apron to expand its customer base to people who don't want to be tied to a weekly subscription, and it's already made several major partnerships to test distribution channels.
As the on-demand business grows over the next year, however, it could make things unclear.
Blue Apron currently calculates average revenue per customer by simply dividing net revenue by total customers. But if a significant portion of revenue comes from on-demand channels, Blue Apron would report greater revenue per customer than it actually earns from its subscribers.
Likewise, if Blue Apron includes on-demand customers (who naturally generate less revenue compared to a subscription customer) in its customer count, it will also distort the revenue-per-customer metric.
Investors will need to pay close attention to management's commentary about its on-demand business to see how much impact it could be having on the measuring stick Dickerson wants investors to watch. It's possible management could break out the on-demand business revenue and customer numbers on its earnings reports or in the quarterly earnings calls, but investors shouldn't count on it.