Blue Apron's (APRN) stock recently rebounded from a two-year low after it launched its meal kits on Walmart's (WMT 0.60%) website. Without having to subscribe to Blue Apron's service, customers can now buy individual meal kits from Walmart's online marketplace.
This a la carte approach isn't a fresh concept for Blue Apron. It previously sold its meal kits on Walmart's now-discontinued online marketplace Jet.com for about year before it ended the partnership in 2019. It also sold its meal kits at Costco for a few months in 2018.
Image source: Getty Images.
Nevertheless, Blue Apron's new partnership with Walmart.com has still generated some fresh buzz for the struggling company. Should investors consider this deal a potential catalyst for its stock, which now trades approximately 98% below its IPO price from just five years ago?
Reviewing Blue Apron's biggest problems
Blue Apron initially dazzled investors with its incredible growth rates. Its revenue surged 338% in 2015 and jumped another 133% to $795 million in 2016. Its number of customers more than doubled in both years.
But between 2016 and 2021, Blue Apron's number of year-end customers plunged from 879,000 to 336,000. Its annual revenue fell for three straight years, grew by less than 1% in 2020 as the pandemic generated temporary tailwinds for meal kit deliveries, then dropped again in 2021.
|
Growth (YOY) |
2017 |
2018 |
2019 |
2020 |
2021 |
|---|---|---|---|---|---|
|
Year-End Customers |
(15%) |
(13%) |
(37%) |
1% |
(5%) |
|
Revenue |
11% |
(24%) |
(32%) |
1% |
2% |
Data source: Blue Apron. YOY = year over year.
Blue Apron's heyday ended as it struggled to keep pace with rivals like HelloFresh in the increasingly saturated meal kit market. Several major retailers, including Amazon and Walmart, also launched their own first-party meal kits in 2017.
Many customers started to view meal kits as overpriced boxes of groceries, while others who didn't have the time to cook still preferred to order takeout or use food delivery services like DoorDash.
Meanwhile, pricing pressure, marketing costs, food inflation, and logistics expenses all made it practically impossible for Blue Apron to post a profit. Even though its revenue rose 2% to $470 million in 2021, its net loss still widened from $46 million to $88 million.
How is Blue Apron trying to save itself?
Under CEO Linda Findley, who took the helm in 2019, Blue Apron has mainly focused on reducing its marketing expenses and stabilizing its average revenue among its higher-value customers. In other words, Findley wanted to aggressively right-size its business to stop the bleeding.
That strategy has been slowly but surely working. Between the fourth quarters of 2016 and 2021, Blue Apron's average orders per customer increased from 4.2 to 5.0. Its average order value rose from $58.78 to $63.78, while its average revenue per customer grew from $246 to $319.
Blue Apron's revenue declined 9% year over year in the first quarter of 2022, but it expects to return to growth in the second quarter. In addition, it expects its revenue to increase by the "mid-teens" for the full year, and to achieve profitability on the basis of adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2023.
Analysts expect Blue Apron's revenue to rise 14% to $534 million this year, but for its adjusted EBITDA loss to widen from $39 million to $46 million. Next year, they expect its revenue to grow 19% to $637 million as it squeezes out a slim positive adjusted EBITDA of $1.3 million.
But will Walmart move the needle in the right direction?
During Blue Apron's latest conference call, Lindley said its new partnership with Walmart.com would be an "excellent way" to "introduce Blue Apron to new groups of customers who may not have considered a meal kit before."
Lindley expects to add "similar partnerships in the coming months" to expand its direct-to-consumer business and pivot away from subscriptions. But I'm not too optimistic about this new direction, for three reasons.
First, Walmart seems to have abandoned its own first-party meal kits. If the meal kit market were still fertile, it would make more sense for Walmart to continue selling first-party kits instead of striking a deal with Blue Apron.
Second, Walmart previously signed a similar deal (which has since ended) with Blue Apron's smaller rival Gobble in 2018. That deal strongly suggests that Blue Apron's partnership with Walmart isn't an exclusive one, and Walmart could still sell additional third-party meal kits on its website in the future.
Lastly, selling individual meal kits could cannibalize Blue Apron's subscription-based business. Blue Apron is fulfilling all the orders on Walmart.com by itself, so it could incur higher logistics costs without planting the seeds for stickier subscriptions -- which would arguably contradict its original turnaround strategy of focusing on higher-value customers.
Blue Apron stock is not a great turnaround play yet
Blue Apron's stock looks dirt cheap at a valuation of less than one time this year's sales. However, its guidance still seems too ambitious in light of the inflationary headwinds, and the Walmart deal doesn't seem like a game-changer. Therefore, I'd personally stick with other beaten-down stocks instead of betting on Blue Apron's long-shot turnaround in this difficult market.
