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3 Reasons Why Blue Apron Investors Could Already Be Doomed

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Thanks to the overall rise of meal delivery services and an aggressive digital marketing strategy, Blue Apron has emerged as one of the most popular brands in the growing recipe kit delivery market. However, since its shares debuted in late June, Blue Apron has tumbled more than 50% and is struggling to generate any positive momentum.

Blue Apron is a noticeable name in a trendy industry, but the company must still answer the same fundamental questions faced by many young stocks: What is the expansion plan, and how will growing pains be handled? Where are customers coming from, and what will be done to beat out competition? When can investors expect to see profitability?

Unfortunately, Blue Apron has failed to satisfactorily address these issues, and the stock has been punished. The company’s shares have been nearly slashed in half from their IPO price, sending Blue Apron’s market cap towards the $950 million mark.  To put that in context, the meal kit service’s latest round of private funding valued the brand at over $2.2 billion.

Things aren’t looking great for Blue Apron, and a closer inspection of the company’s key metrics further strengthens the bear case. On top of slumping share prices, here’s three more reasons why Blue Apron investors ought to be worried right now:

1.       Stagnating Customer Growth

In the most recent quarter, Blue Apron said that it had 943,000 customers, which was down about 9% from the first quarter. Management said that a planned $26.1 million reduction in marketing between the first and second quarters was to blame for the slump.

As opposed to a slump without a clear cause, it is certainly better to have a quantifiable reason for customer growth stagnation. This means the company understands the pros and cons of its customer acquisition strategy. However, this is not a trend that Blue Apron can sustain for very long. Controlling marketing costs will be necessary to reach profitability, and if the service loses that many users due to one cost cut, there could be serious problems in the long-term.

 

2.       Slumping Revenue Per Customer

Blue Apron’s report also revealed that average revenue per customer was down to $251 in the second quarter. This represents a nearly 5% dip from the $264 seen in the second quarter of 2016. The company also reported small dips in both average order value and orders per customer.

We know Blue Apron dishes out plenty of free trials, so it’s important that the service capitalizes on its paid customers once they’ve been secured. If falling revenue per customer becomes a trend, we can assume that the product is simply not resonating with users—and that’s definitely something investors will be concerned about.

 

3.       Out-Cashed By Competitors

At the end of the second quarter, Blue Apron said that it had about $62 million in cash and cash equivalents. That was less than half of the $141 million it had in the prior-year quarter and partially a result of the company spending roughly $20 million during the quarter. As competition heats up throughout the meal-kit delivery market, having cash on hand is essential for expansion efforts, so Blue Apron’s weak cash position is concerning.

By comparison, grocery chain Kroger (KR - Free Report) , which just expanded its “Prep+Pared” meal kits, had about $319 million in cash at the end of its most recent quarter. Amazon (AMZN - Free Report) has a staggering $15.4 billion in cash right now and could effectively squeeze out all of its competition.

Even other meal kit-only companies are positioned with more cash right now. For example, HelloFresh has the advantage of being a majority holding of German incubator Rocket Internet, which had about $2.2 billion in pro-forma cash at the end of the most recent quarter. And interestingly enough, HelloFresh just announced that it was also pursing an IPO (also read: 5 Things To Know As Meal-Kit Startup HelloFresh Preps For IPO).

 

Bottom Line

Blue Apron has a solid product and great brand recognition. However, in an incredibly crowded market with bigger competitors entering en masse, these advantages don’t necessarily translate to consistent growth. Sure, the company is working on its logistics and attempting to reel in costs, but we’ve already seen several indications that Blue Apron is a small fish at risk of being swallowed up by the industry’s sharks.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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