Always on the hunt for names that the markets have jettisoned in order to find potential bargains, I stumbled onto Blue Apron Holdings Inc. (APRN) several months ago, but not in the usual way. In this case, we'd received several discount offers for Blue Apron's mail-order meal kits, which in turn led to me checking out the stock.
Blue Apron went public on June 29, 2017, at $10 a share and briefly rose to $11 that day, but it has been downhill ever since. Indeed, it is one of the rare occasions that shares didn't jump, at least temporarily, well above the offering price. Its shares closed at $1.83 last Friday, Sept. 14, and are down 82% since their debut.
While starting to check out Blue Apron's financials, we also decided to check out the product itself and utilized one of the discount offers to place an order. I was skeptical; not the healthiest of eaters, I was anticipating very bland meals. I could not have been more wrong.
Both meals (asiago chicken and beef stir fry) we've had so far have been very tasty and filling (one was a Whole30 recipe), fairly easy to prepare, and there was no need to order a pizza afterwards. I am looking forward to the next two that were part of the initial order. With the discount, it cost $30 for four meals for two. While much cheaper than eating out, it is considerably more expensive than hitting the grocery store for ingredients, and I can't see continuing longer term.
Therein is one of the big issues with this company and the concept. It needs to get repeat business and to convert customers after the discounts are utilized. The costs to acquire customers are high; Blue Apron's marketing expense last quarter represented more than 19% of revenue. The same quarter, customers decreased 24% year over year. In a nutshell, the product is not sticky; not enough customers are in it for the long haul.
Blue Apron launched a pilot program in May to sell meal kits at 17 select Costco Wholesale Corp. (COST) stores; that number had grown to 80 stores by APRN's second-quarter conference call. The price for a four-serving meal kit was $24.99, about 30% less than the subscription price. This seems like a potential step in the right direction, but there's no data yet as to how well this is working. Selling in Costco is also a more passive approach, and there may not be a progress report here until Blue Apron reports third-quarter earnings in early November.
Meanwhile, adding insult to injury, competition has grown in the meal kit space. German entrant HelloFresh (HLFFF) went public last November, and early last month Walmart Inc. (WMT) announced a partnership with Gobble. In June, Kroger Co. (KR) acquired Meal Chef for $200 million. Of course, Amazon.com Inc. (AMZN) and Whole Foods may be the end of any standalone meal kit company turning a profit.
As for Blue Apron, it ended last quarter with cash of $183 million, or just under $1 per share, and $125 million in debt. It has yet to turn a profit, and consensus estimates have the company in the red at least through 2020. Last year Blue Apron booked $881 million in revenue but lost $210 million. Revenue is expected to fall below $700 million this year.
No matter how good the product is, I don't want to invest in a company that is facing completion from others that could utilize meal kits as a loss leader. I will pass on APRN -- the stock, that is. We may continue to buy the product from time to time, but would be unlikely to pay full price. I suspect many other consumers feel similarly.
The economics of mail-order meal kits just don't seem to make sense. Blue Apron's way out may be through a sale, if there's anyone with deeper pockets that wants to get into the business. Blue Apron seems to have built some brand awareness and has an enterprise value below $370 million, for what it's worth.