Is Blue Apron Stock Worth the Hype?

APRN stock
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APRN Stock Surges 14%

At one point this year, Blue Apron Holdings Inc (NYSE: APRN) was a promising tech IPO…then it wasn’t. The meal delivery startup went public in late June, under a cloud of bad news, so it was no surprise that Blue Apron stock fell as much as 36% from its opening bid.

But investors are now bullish on the company. In an extraordinary fit of amnesia, the market reversed course on APRN stock and drove the price up 14%.

And in one trading session, too!

For those who may not be familiar with Blue Apron, it aims to disrupt restaurants and grocery stores by delivering something called “meal kits.”

These meal kits carry ingredients and a corresponding recipe card. They are delivered straight to customers’ doorsteps, and cost about $10.00 per person, per meal.

Rather than receiving takeout, meal kits are supposed to preserve the joy of cooking while eliminating the pain of shopping. It is a fun idea, just not one that seemed to be working out.

For example, Blue Apron’s IPO price was originally slated in the $15.00 to $17.00 range. It was supposed to raise the company’s valuation to $3.0 billion from the $2.0 billion it had achieved in its previous funding round.

Instead, APRN stock went public at $10.00 and scored a valuation of $1.9 billion. Not exactly what you want if you’re the venture capitalist who got in early. But fear not, because now investors are getting some sound advice on Blue Apron stock.

Seven different analysts, prestigious analysts, issued a “Buy” rating on APRN stock. Should it bother you that some of these analysts work for the firms that underwrote Blue Apron’s IPO?

Of course not! I’m sure that is just a coincidence.

“We believe Blue Apron is addressing a large multi-billion dollar market that is nearly all offline and taking spend away from both traditional grocers and restaurants,” said one of the analysts. (Source: “Blue Apron shares surge 13% after Goldman, other analysts say the troubled IPO is a buy,” CNBC, July 25, 2017.)

Really? Because a month ago you were terrified of Amazon.com, Inc. (NASDAQ:AMZN). You ran around saying that Amazon’s acquisition of Whole Foods Market, Inc. (NASDAQ:WFM) marked the end of Blue Apron.

Also ReadMost Undervalued Tech Stocks of 2017

Which is it? Either APRN stock wins or it doesn’t…

Competition is heating up among meal delivery companies. Specialists like DoorDash, Postmates, Instacart, and Munchery are raising tons of cash. Outsiders like UberEats and Yelp Eat24 are testing the water as well.

And Amazon Fresh has limitless resources

Things don’t look good, in other words. But it gets even worse the closer you look.

Blue Apron Has a Broken Business Model

Blue Apron is bleeding. The company’s own statements show that customers spend less money after a few years on the service. It should be the other way around.

Blue Apron says this is because customers are redeeming promotional coupons. If you’ve ever listened to a podcast, you know exactly what they are talking about.

I hear Blue Apron commercials three times a day on my commute to work. On every single one of my favorite podcasts, they offer a coupon for one free meal, or one free week of meals, or direct access to APRN shareholders’ bank accounts.

(That was a joke, relax).

The strategy is simple:

  1. Give people discounts so they become addicted to the service.
  2. Pray they become so addicted that they refuse to switch to lower cost alternatives.
  3. At some point, remove the promotions and let people pay the higher prices.

Analysts are starting to believe in this plan. They think that Blue Apron’s lead is becoming insurmountable, and that some rivals will soon abandon the chase.

Here’s why they are wrong.

Customers ordered an average of 4.5 meals per week in the first three months of 2016. These three months are supposedly the strongest in the meal delivery business, yet average customer orders fell to 4.1 by the first quarter of 2017.

This means that Blue Apron’s connection with customers weakens over time. The company itself acknowledges this fact in its S-1 Filing.

“Over time our customers on average order less frequently or sometimes cease ordering, as evidenced by the declining increases,” the company said in its prospectus. (Source: “Blue Apron Holdings, Inc. Form S-1,” United States Securities and Exchange Commission, June 1, 2017.)

Maybe Blue Apron (APRN stock) is too expensive for too many people. Maybe it is tough to scale without existing fulfillment centers in every major city. Maybe there needs to be multiple revenue streams.

I don’t know which problem is the most important for Blue Apron to solve. All I know is that when a startup has this many problems, and no stranglehold over its market, then I steer clear of it.