Seemingly left for dead, meal-kit provider Blue Apron (APRN) emerged from the grave on Tuesday, with APRN stock jumping over 25% higher from the prior day’s close. Undergirding the unexpected spike was a critical deal that eases funding pressure. Moving forward, Blue Apron will shift to an asset-light model which may help its bid to profitability.
Nevertheless, before investors jump on APRN stock, they should be aware of the intense headwinds facing the underlying enterprise. On the technical front, APRN is still down 23% on a year-to-date basis despite Tuesday’s remarkable rally. Over the past 365 days, it lost more than 83% of equity value. However, the fundamentals present the biggest challenges.
In other words, we’re probably not out of the woods yet with Blue Apron’s struggle for relevancy.
APRN Stock Gets a Lifeline
According to a MarketWatch report, Blue Apron will pivot to the aforementioned asset-light business model by transferring its infrastructure technology to FreshRealm, a provider of fresh meals to retailers across the nation.
Per the article, “[t]he companies have signed a nonbinding letter of intent for the transfer, with Blue Apron to receive up to $50 million and FreshRealm to get warrants in an amount equal to 19.9% of the company’s then-outstanding common stock at an exercise price of 1 cent a share.”
While Blue Apron doesn’t expect any changes to its revenue streams, it will enjoy the room to grow its brand and strive for profitability. Even better for APRN stock, Benchmark analyst Daniel L. Kurnos endorses the move, stating that the deal will “substantially” accelerate Blue Apron’s bid to print positive figures on the bottom line.
Notably, Blue Apron represented a key highlight on Barchart’s screener for unusual stock options volume. Following the close of the May 16 session, total volume reached 14,196 contracts against an open interest reading of 87,565. Further, the delta between the Tuesday session volume and the trailing one-month metric came out to 218.80%.
Drilling into the details, call volume hit 10,720 contracts versus put volume of 3,476. This pairing yielded a put/call volume ratio of 0.32, on paper favoring the bulls. Nevertheless, as stated earlier, investors should be careful about jumping aboard APRN stock.
Blue Apron’s Fundamental Headwind
Although the above lifeline generated immediate buzz for APRN stock, the troubles impacting the meal-kit provider don’t just disappear with one positive session. Primarily, Blue Apron suffers from a massive relevancy problem and the financials reflect it.
According to the company’s press release for its first quarter of 2023 earnings report (published May 4), Blue Apron posted net revenue of $113.1 million. Against Q4 2022, this tally represented an increase of 5.9%. However, stacked against the year-ago quarter, Blue Apron incurred a 4% decline.
However, looking into the granularity, average order value increased 11.6% on a year-over-year basis and declined 3.9% sequentially. Management explained that this dynamic stemmed from a price increase introduced in Q2 2022 and increased promotional spending in Q1 2023, respectively. Further, average revenue per customer increased 7.9% YOY and declined 3.4% sequentially due to the aforementioned price increase.
Put another way, Blue Apron must engage in sales-versus-profitability tradeoffs to keep its business machinery running. Such tradeoffs might only increase in scope as the economy hurtles toward an ambiguous ecosystem of stubbornly high inflation, rising interest rates, geopolitical uncertainties and an ongoing banking crisis.
What’s more, The Wall Street Journal recently reported that the return to the office has stalled, with companies choosing to settle into hybrid work plans. With plenty of people still operating remotely, millions of households have the luxury of time.
Well, that cuts into Blue Apron’s core convenience of its meal kits saving time. Therefore, APRN stock runs into a relevancy issue.
More Troubles Await if a Solution is Found
To be sure, it’s more than possible that as mass layoffs start accelerating under this difficult economic cycle, companies will lay down the law. Personally, I’m almost certain that this will occur, which theoretically might make APRN stock interesting.
However, mass layoffs also implies a deflationary environment where fewer dollars are available to chase goods, which happen to be more plentiful because of the underlying demand loss. In such a scenario, I fail to see how a meal-kit delivery service will thrive.
Sure, prices may fall but that’s also because people are losing their jobs. Therefore, even if one hurdle falls, another would pop up in its place. Without a clear road, investors should approach APRN stock with extreme caution.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
