As of late, monthly subscriptions to product boxes have become popularized. Among the products offered are clothes, snacks, cosmetics, and shoes. One such company by the name of Blue Apron Holdings, Inc. initiated their IPO recently. Despite the investor hype that often surrounds IPO’s, the stock has plummeted from its offering price of 10$, to the 5$ region. Is this a struggling small cap that will rebound, or a company that will go up in flames and make a good short target?
For those that haven’t been familiarized with the subscription food business yet, Blue Apron Holdings, Inc. sends a monthly box of food with original recipes to your door. Blue Apron Holdings, Inc. claims to communicate directly with farmers to obtain food that is of high quality, and sustainably grown. They eliminate the middleman by sending the food directly from farmers to you. Their products boast typical health food buzzwords like Non-GMO, and hormone/antibiotic free. The food arrives with cooking instructions in a regular schedule, depending on the customer’s subscription preferences.
Where did the company go wrong? To start off, the company has a shallow economic moat. Blue Apron Holdings, Inc. faces several competitors already such as Hello Fresh and Home Chef. Fundamentally, these companies offer the same service. Additionally, investor doubt worsened when Amazon acquired Whole Foods. A similar service offered by Amazon’s Prime services would likely squash Blue Apron Holdings, Inc. A class action lawsuit has also been filed against the company for withholding important information from investors, further stressing the stock price. All of these factors paint a grim picture for Blue Apron Holdings, Inc.
The sentiment surrounding the company is clearly not good. This is apparent in the 50% drop in the stock over the last few months. However, the fundamentals tell a different story. In the company’s most recent quarter, revenue increased 18% year over year. The stock still experienced selloffs following the report, which can be attributed to a slowing growth rate. Although the company’s revenues are still growing, investors were likely hoping for an accelerating growth rate. Blue Apron attributes the slowing rate to a planned decrease in marketing spending. The company is still losing money and reported a net loss of 31.6 million. The amount of customers increased 26% year over year, but declined 9% quarter over quarter.
If revenue is increasing, and customers are increasing, why so much bearish sentiment? Well, the issue lies in the company’s model itself. Subscription box retailers have to spend a lot of money on marketing to acquire new customers, and keep those customers. In fact, the company spends 400$ to acquire a customer, but only rakes in about 236$ per customer. Customer retention can also be pricy, causing Blue Apron Holdings, Inc. to set low margins to keep their products affordable.
Ultimately, the Blue Apron Holdings, Inc. does have potential. They are still making more money and acquiring more customers. Despite the fundamentals being present, I would not touch this stock. It would take overwhelmingly good news to see any positive price action. Any negative news is going to stockpile onto the mountain of bearish sentiment and send the stock falling. Turning around a company takes time and money, and it seems Blue Apron Holdings, Inc. doesn’t have either. It is for this reason I recommend taking a short position in APRN, or standing on the sidelines till the company establishes itself.
Disclosure: No positions are held in Blue Apron Holdings, Inc. and not intended to initiate in the near future.