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From Unicorn to Unicorpse: Blue Apron Tanks Under Public Scrutiny

Posted on Thursday, Nov 16th 2017

Meal-kit delivery service Blue Apron may have boasted about knowing the recipe to success once upon a time. But the market scrutiny that accompanies a public listing hasn’t done the company any favors. The New York-based company began trading on the NYSE earlier this summer. In less than six months, the valuation of the company has tanked as the stock price has fallen nearly 70%.

Blue Apron’s Financials

Blue Apron was founded in 2012 to help consumers make better meals at home by providing to them a menu plan along with the ingredients needed to deliver that menu. Since being founded, the company has delivered nearly 160 million meals to households across the United States. It provides original recipes that are designed and sent along with fresh, seasonal ingredients directly to its customers. Blue Apron offers two flexible plans—a 2-Person Plan and a Family Plan – that the customers can choose from depending on the number of portions they require. Besides selling meal plans, the company has also started to sell wine that can be paired with its meals, kitchen tools, and other staples that are used in its test kitchens.

Blue Apron’s interesting service has helped it deliver strong revenue growth. Revenues increased from $77.8 million in 2014 to $340.8 million in 2015 to $795.4 million in 2016. But the revenues have come in at a heavy cost. For the years ended December, net losses have grown from $30.8 million in 2014 to $47 million in 2015 to $54.9 million in 2016. During the same period, adjusted EBITDA has also grown in losses from $26.5 million to $42.9 million to $43.6 million.

Earlier this month, Blue Apron recorded its third quarter results that did little to improve the stock’s performance. Revenues grew 3% to $210.6 million, driven by an increase in Average Revenue per Customer. Net loss was $87.2 million and diluted loss per share was $0.47 for the quarter compared with a net loss of $37.4 million and diluted loss per share of $0.56 a year ago. Adjusted EBITDA came in at a loss of $48 million, compared to a loss of $34.6 million last year. The market was looking for revenues of $191.5 million and a net loss of $0.42 per share.

Blue Apron expects current quarter revenues to fall 12% to $189.4 million, thus ending the year 2017 with $882.9 million. The market was looking for revenues of $199.6 million with a net loss of $0.22 per share for the quarter.

It is not just the continued losses that bother the market. Blue Apron’s decreasing customer metrics are also a cause of concern. During the quarter, its customer base reduced 6% to 907,000. Blue Apron attributes the reduction in the customers to its reduced marketing efforts. Instead of attracting more customers, the company has focused on improving its fulfillment center operations and driving profits instead. Marketing expenses during the quarter were down 31% to $34.2 million. It plans to further cut marketing efforts in the current quarter that could further lead to reduction in its customer base in the coming quarters.

Blue Apron’s Worries

Blue Apron has been plagued by issues in its fulfillment centers. It had set up a new facility in Linden, New Jersey recently and planned to move operations from an older fulfillment center to the Linden one. But the migration has been delayed and has affected the quality of its deliveries. Blue Apron had been counting on the Linden facility as it was going to be bigger and would have incorporated more automation than its earlier site. It would have allowed Blue Apron to offer more meal options and personalization capabilities. The facility is expected to handle majority of the orders for Blue Apron. As of the last quarter, it had reached scale to handle 50% of the volumes. The Linden facility has also been responsible for higher costs. To balance these rising costs, Blue Apron announced a lay-off of 6% of its workforce last month.

Additionally, Blue Apron faces growing competition from rivals that have been eating into its market share. According to an Earnest Research report, Blue Apron’s market share has fallen from 57% in 2016 to 43% as of September 2017.

Its biggest rival is Hello Fresh, which recently listed successfully on the Frankfurt Stock Exchange, trading 4% higher than the list price on the first day itself. It raised $420 million from an offering of stocks valued at €10.25 (~$11.91) and a market valuation of $2 billion. Hello Fresh reported $169 million in revenues in the last quarter and it is focused on beating Blue Apron to become the biggest player in the market. Hello Fresh had revenues of $505 million for the first six months of the year with losses of $66 million.

Meanwhile, Blue Apron’s stock is trading at low levels of $3.02 with a market capitalization of $580 million. The valuation is a far cry from the more than $2 billion levels it had peaked to in June 2015 . Blue Apron had listed in June this year at a valuation of $1.9 billion. Earlier analyst estimates had valued the company at $3.2 billion. The stock had listed at $10 apiece. Soon after listing, the stock climbed to $11.00, but it has been falling ever since.

Prior to listing, Blue Apron had raised $194 million in funding from investors including Jason Finger, BoxGroup, Bessemer Venture Partners, Stripes Group, Fidelity Investments, Peak Opportunity Partners, Joseph N. Sanberg, First Round, Alan Gould, Eric Gould, and Nat Turner.

Its current situation is a classic tale of how over-funded startups with non-viable business models and failing performance implode under public scrutiny. I don’t think Blue Apron will be the only one to meet this fate. Others with similar problems, like Snap, are likely to join the bandwagon.

This segment is a part in the series : From Unicorn to Unicorpse

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