Blue Apron (NYSE:APRN) recently posted its third-quarter earnings, and the numbers initially looked dire. The meal-kit maker's revenue fell 34% annually to $99.5 million, missing estimates by $7.4 million. Its net loss narrowed from $33.9 million to $26.2 million, or $1.99 per share -- but still missed expectations by a penny.

Those headline numbers justified a big post-earnings plunge, yet Blue Apron's stock rallied as investors spotted a few flickers of life. Let's see if these newfound strengths actually outweigh its ongoing weaknesses.

A Blue Apron meal kit.

Image source: Blue Apron.

First, the bad news...

Blue Apron lost customers as competitors entered the market and customers realized that they were simply buying overpriced boxes of curated groceries. Diners who didn't want to cook also chose takeout or delivery options instead.

Blue Apron has had three CEOs since its public debut two years ago. Its newest CEO, Etsy's former chief operating officer Linda Findley Kozlowski, took over earlier this year. However, Kozlowski hasn't halted Blue Apron's ongoing declines in customers, orders, or revenue yet:

YOY growth

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Customers

(25%)

(25%)

(30%)

(34%)

(40%)

Orders

(27%)

(24%)

(29%)

(34%)

(35%)

Revenue

(28%)

(25%)

(28%)

(37%)

(34%)

YOY = Year-over-year. Source: Blue Apron quarterly results.

Blue Apron is also reducing its marketing expenses, which fell 48% annually during the third quarter, as it loses customers. Kozlowski claims that this strategy enables it to cut costs while retaining "high affinity" customers, but it could also prevent it from gaining new customers.

Blue Apron's total customers fell 14% sequentially and 40% annually to 386,000 during the third quarter, and that figure could drop much lower before bottoming out. Wall Street expects its revenue to drop 31% this year.

Now the good news...

Blue Apron is still bleeding, but its average order value rose 1% annually to $57.60, its orders per customer increased 10% to 4.5, and its average revenue per customer rose 11% to $258. That growth isn't enough to offset its ongoing loss of customers, but it suggests that Blue Apron's revenue could rise again once its customer declines bottom out.

Moreover, a recent survey of U.S. online shoppers by Clutch still found that Blue Apron tied pet food service Barkbox as the third most popular subscription box service in America, and the top meal kit service. 17% of respondents chose Blue Apron, while its rival Hello Fresh ranked fourth with a 16% mindshare.

A Blue Apron meal kit.

Image source: Blue Apron.

That loyalty indicates that fears about rival meal kits from Walmart, Kroger, and others might be overblown and that a potential takeover by those grocery giants could still be possible. After all, Blue Apron's enterprise value of about $180 million would be a small price to pay for a market-leading position in the meal kit race.

Kozlowski's focus on cutting costs also narrowed Blue Apron's adjusted EBITDA loss from $18.8 million to $13.2 million. Its negative free cash flow of $8.9 million also marked a significant improvement from negative $18.6 million a year earlier, and it reduced its long-term debt from $82.6 million at the end of 2018 to $54.3 million.

Blue Apron reiterated its goals of returning to sequential growth in revenue and customers by the first quarter of 2020 and annual growth by both metrics in the second half of the year. It claims that it can accomplish this with a "focused expansion to new customer segments," "more menu choices and flexibility," and "efficient" marketing efforts through new partnerships.

The key takeaways

Blue Apron is making progress under Kozlowski, but its weaknesses still outweigh its strengths, and its turnaround plans are vague. Its customer base is still shrinking too quickly, its average revenue per customer isn't growing fast enough, and its lower marketing expenses could cripple its ability to counter rivals like Hello Fresh.

I wouldn't consider buying Blue Apron until it gains customers on a sequential basis again as it narrows its losses. Those improvements might eventually lead to a comeback, but Blue Apron remains too speculative to buy at these levels.