Why Nothing Will Save Blue Apron From Bankruptcy
Peter Sayles |
Blue Apron (NYSE: APRN) shareholders finally had a couple things to for on January 8, 2019.
It announced it is partnering with Weight Watchers (NASDAQ: WTW) to provide their members with Blue Apron meal kits.
A couple days later, APRN announced it will reach profitability by the end of the year.
APRN’s shares have risen more than 50% since.
But we don’t think either of these announcements will save Blue Apron from filing for bankruptcy – or at least be on the verge of bankruptcy.
Why? Because it’s a stock guaranteed to lose you money long term.
Let us explain.
Weight Watchers Members Don’t Solve Blue Apron’s Number One Problem
Weight Watchers has almost 3 million members in North America.
There’s no doubt partnering will help Blue Apron in the short term. But it doesn’t solve any of the problems that caused it to become a penny stock earlier this year.
We cited its problems back in November.
- Blue Apron has been a money loser for years. It burns through tens of millions each and every year.
- It’s user churn is 72% within six months. Meaning it acquires a customer. Then never sees them again six months later
- It’s customer acquisition cost is (was) close to $400. It’s revenue-per-customer is only $236. Meaning it loses $164 per every customer it acquires.
- Then loses them six months later.
- Blue Apron is no longer able to grow revenues. Its revenues are down over 23% in the past year alone.
The list goes on.
If history is any guide, the Weight Watchers partnership won’t help.
We can look back not too long ago to see this won’t work out. Blue Apron announced a partnership with Costco back in May 2018.
Costco has over 94 million members worldwide. Investors cheered at the possibilities it would open up to APRN partnership with one of the biggest retailers in the world.
Costco ended the partnership indefinitely in less than six months.
If Costco can’t make any sort of Blue Apron partnership work… how is Weight Watchers supposed to help?
Meanwhile Weight Watchers has to deal with its own problems. Its stock is down over 66% since July 2018. Revenues are stagnant. And it has troubles with its own customer growth.
Blue Apron Is Misleading Investors About Its Profitability
Blue Apron announced it’ll be profitable by the end of the year this past Tuesday (January 15).
Shares rose 44% on the end as investors cheered the news.
But we don’t think really looked at the announcement into how APRN said it would be profitable.
Blue Apron said it would be profitable this year based on an adjusted EBITDA basis.
EBITDA – earnings before interest, taxes, depreciation, and amortization – is already adjusted from GAAP accounting rules to help companies show a bit of a “truer” profitability.
Now we’re just going to go ahead and adjust the adjustment?
It gets better.
APRN said it’s adjusted EBITDA will “eliminate share-based compensation expense as well as interest income (expense), net, other operating expense, other income (expense), net, benefit (provision) for income taxes and depreciation and amortization.”
One of the biggest takeaways from this adjustment is the share-based compensation.
They’re simply saying “Investors, we’ll be profitable if you just forget about how much we pay ourselves even though we’re running the company into the ground.”
Want to know why? Because Blue Apron paid themselves an extra $5 million in wages and stock quarter-over-quarter.
Isn’t that ironic? The stock is down 99% since its IPO. Yet they keep paying themselves more and more money.
We don’t understand how investors cheered this news.
Plus, they think they can reach profitability by the end of the year. It’s not even a guarantee.
What happens if they continue to see competition among the hundreds of other food delivery businesses. What about the grocery stores upping their delivery game. And all individual restaurants following suit.
Blue Apron has no chance at coming out the other side… unless they get miraculously bought out by some private equity group.