It wasn't supposed to be this way.
Blue Apron was booming. The meal-kit startup—one of the first entrants into the nascent industry—had become the dominant player in the US market by 2015, racking up a monster $2 billion valuation along the way. Investor appetite seemed insatiable.
This quickly changed as the company prepared to go public last year. The IPO range was chopped to $10-$11 per share from its initial estimate of $15-$17, and the company eventually floated at the bottom end of that already-diminished range. Blue Apron went on to lose some $1.6 billion in market value before finding a low in April at just $1.77 per share. At the time of the IPO, Blue Apron's initial market cap was around $1.89 billion.
But things are changing now, with shares attempting to rally since hitting bottom. Here's a look at how Blue Apron got into this mess—and how it could be cooking up a turnaround.
Several factors contributed to Blue Apron's post-IPO disappointment. For one, seesawing marketing expenses. Heading into the IPO, marketing spend reached an eye-watering $61 million in 1Q 2017. (FY 2016 marketing spend was "only" $144 million by comparison.) Management cut back on the marketing spend, new user growth slowed, and momentum was lost.
This is crucial, as three key metrics—average order value, orders per customer and revenue per customer—were all down year-over-year as Blue Apron went into its IPO.
In essence, the company's success after going public depended on new customers being attracted. But in a bid to shore up its financials, it cut its sales pipeline off. No surprise then that in announcing its first set of results for 2Q 2017, Blue Apron reported it lost nearly 100,000 customers in just three months. Investors were furious with the value destruction, with multiple lawsuits filed that alleged management misled shareholders, even as hundreds of employees were laid off.
To be fair to Blue Apron, when it filed for its IPO, the company couldn't have seen what was coming: namely, Amazon's acquisition of grocery store Whole Foods barely a week later for $13.7 billion. This undoubtedly spooked prospective investors and initiated the haircut of Blue Apron's opening price to just $10. While Amazon hasn't yet begun doing meal-kits since the acquisition, one must imagine it is only a matter of time. Especially with a respected food brand, celebrity endorsements and 100 million Amazon Prime members who may be ready to sign up.
Moreover, one of the biggest kicks came from Europe, as HelloFresh became a real presence in the US. After listing in November—and seeing its share price jump more than 42% since—HelloFresh has largely taken over. After announcing its goal of becoming the No. 1 meal-kit company in the US as it prepared to IPO, it did just that this March, with a reported 36% market share. Blue Apron, which holds 35%, has no market outside the US.
And what could it fall back on? Buzzwords such as "no artificial ingredients" are hardly unique to Blue Apron. Heirloom produce may not be a winning message with protein-loving Americans. And what's worse, some Blue Apron users began complaining of a drop in quality late last year. On top of this, a host of younger, well-financed startups such as Home Chef, Sun Basket and Freshly are eating into its market. Why choose Blue Apron over the others?
The continued maelstrom meant that something had to give. Or, in this case, somebodies. Blue Apron's COO and co-founder Matthew Wadiak was the first to go in July. A few months later, the company hired Lainie Cooney as its new chief HR officer. Wadiak's departure was particularly worrisome, as the trained chef was arguably the heart and soul of Blue Apron and its culinary approach.
Yet despite the turnover, the malaise lingered. Blue Apron hit the headlines once more in November, again for the wrong reasons: Development of its new fulfillment facility in Linden, NJ, had lagged with "unexpected costs" arising. By the end of the month, CEO and co-founder Matt Salzberg was out, replaced by CFO Brad Dickerson. Salzberg, however, stayed with the company and was made executive chairman, a position that came with a big salary increase—essentially a raise in exchange for not being CEO anymore.
Despite all the darkness, there may be light at the end of the tunnel for Blue Apron. After wading through problems at its Linden plant and cutting marketing spend, the company has struck several partnership deals and endorsements in 2018. This includes a tie-up with Costco to sell its meal kits in May and even a deal with Fox's hit show "Bob's Burgers," which will see meals from the comedy turned into recipes users can cook at home.
Numbers are looking increasingly promising, too. The company has reinvested in marketing, helping revenues grow 5% in 1Q from 4Q 2017, while net losses improved to $31.7 million from $52.2 million. Since announcing these results on May 3, the company’s share price nearly doubled before giving back the bulk of the gain in recent weeks (although still up 41% from the low set in April). While the spike may have come in part from Kroger’s acquisition of Blue Apron rival Home Chef in May—suggesting to investors more acquisitions in the space could be around the corner—the hope a turnaround is afoot cannot be denied.
Investors will get an update on management's turnaround efforts on Thursday, when the company reports its latest quarterly results. Analysts are looking for a loss of 17 cents per share on revenues of $188.5 million. Watch for a possible upgrade to forward guidance: Back in May, management reaffirmed an expectation of falling revenue on a year-over-year basis for the 2018 fiscal year.
Update: August 2, 8:00 am PT
Well, it looks like the whole batch went bad: Blue Apron shares fell as much as 23% in early trading on Thursday following disappointing Q2 results and tepid forward guidance. A loss of 17 cents per share matched estimates, but revenues fell 24.6% from the year-ago period for a total of $179.6 million versus the $188.5 million analysts were expecting. Customer count fell 24% YoY and 9% QoQ.
In the post-earnings conference call, management forecast current quarter revenues of between $150 million and $160 million, compared with the $204.2 million expected. This raises the stakes for the company's efforts to shift its focus away from meal-kit delivery to opportunities in the traditional retail channel as the competition keeps closing in.
Related reads: An inside look at Blue Apron's IPO filing