Blue Apron Holdings (APRN) is one of the country’s largest meal kit delivery companies. Launched in 2012 by three young professionals, the company now generates 3.5 million orders every three months from over 750,000 subscribers, explains George Putnam, editor of The Turnaround Letter.
Customers like the simplicity of having all the ingredients and instructions delivered fresh to their homes, plus the certainty of knowing “what’s for dinner” at a cost that is less than most restaurants.
Investors eagerly anticipated its June 2017 initial public offering, but were soon turned off when they learned about Blue Apron’s strategy of adding ever-higher numbers of subscribers without regard to the accelerating financial losses.
It seemed to illustrate in real life the business school joke about an ill-conceived business model, “We lose a little on every sale but we make it up in volume.” The IPO went poorly and the company’s shares have now fallen over 65% from their $10 IPO price.
Blue Apron is essentially a logistics operation but the founding management viewed it as a marketing company and neglected the operations. The company brought in a new CEO, Brad Dickerson, who came from a 10-year stint as finance chief at Under Armour (UA).
He is strengthening the management team and instituting disciplined financial and operating controls as well as developing a more sustainable overall strategy. A new CFO brings valuable experience and Blue Apron just hired a head of supply chain with extensive operations and logistics capabilities.
Management is focused on producing double-digit revenue growth and break-even EBITDA by 2019, and they have hinted that this might occur sooner.
Other initiatives by this new and highly-motivated management team are likely to help boost visibility and demand. For example, a new partnership with Costco is putting Blue Apron meal kits in selected west coast stores.
While competition is increasing, many smaller competitors will likely fall to the wayside. Grocery stores have no guarantee that their offerings will come to dominate the category, and Amazon’s approach so far offers somewhat in-direct competition. The newness of the meal kit industry leaves plenty of room for well-run companies like Blue Apron.
Blue Apron holds over $220 million in cash, more than offsetting its debt, providing a run-way for its turnaround. Given current operating losses, traditional earnings-based valuation metrics don’t yet apply.
Much more work needs to be done to improve the company’s ability to capture and retain customers. Its turnaround won’t happen over night, which is no doubt disappointing to the market.
With an enterprise value/revenues multiple of only 0.7x, it is attractively priced considering its prospects. For this unconventional stock, we think the upside potential is worth the acknowledged risks. We recommend the purchase of shares of Blue Apron up to 6.
