Sometimes it's difficult for investors to separate the concepts of an interesting idea or product versus the ability of a company to actually make money from that idea. It's easy to become enamored with the latest gadget, service, or convenience, and translate it into investment success. You've heard it or perhaps experienced it before; I know I have, and it can be a painful lesson.
Two months ago, I wrote a column on Blue Apron (APRN) , which sells mail order meal kits. I watched the stock price fall precipitously, and dumpster diver that I am, decided to take a look under the hood. While the financials were not impressive, we decided to test out the product, which was very impressive. It was also costly, however, and I decided that the economics simply were not there, and that the odds were against the stock.
Beyond the costs, and it can't be cheap to source and purchase fresh ingredients, but on top of that, package it in specialty packaging, and then ship it to consumers. There's also been growing competition. I can now purchase meal kits in our local grocery stores, there are no delivery costs for anyone to bear, and the packaging is simpler.
Blue Apron has been able to attract consumers by offering coupons or discounts, but too often, as in our case, once the discounts end, the service is cancelled. The product is simply not sticky enough due to the costs. Even the coolest ideas need to ultimately generate a positive bottom line.
In APRN's case, shares have fallen another 36% since my initial column ran, but there has been a tease or two for investors along the way, potential rays of light. On October 29th, the company announced a deal with Walmart (WMT) , in which the company's products will be a "priority partner" on WMT's Jet.com. Shares rose as much as 21% intraday before settling up 10%.
However, third quarter earnings results, released on November 13th after market close, were mixed. While the loss of 18 cents/share was better than the 22 cent consensus, revenue of $150.6 million did not hit the mark ($158 million). Revenue fell 28% versus the same quarter last year, and cash decreased from $231 million to $164 million, while debt remained at $125 million. While APRN amended its credit facility in late October, extending the final maturity date from August 2019 to February 2021, the move comes at a price, namely a 200 basis point increase in the interest rate.
Clearly, this is a company that is burning through its cash, and profitability is not in sight, at least through 2020, where the consensus has the company losing 23 cents/share.
One way out is for someone with deeper pockets to acquire APRN, but I can't currently conceive if there would be any interest at a price in excess of the company's current $187 million enterprise value.
Home delivered meal kits sure sounded like an interesting idea, that is, until you consider the cost. Could be a loss leader for a bigger name, but will not likely be profitable as a standalone business.
The potential lesson for investors (and consider that APRN was once traded as high as $11) is to check out the company's financials, and competitive landscape, before you become enamored with the product.