Blue Apron (APRN) reported results last Thursday (February 10th). Apologies for the late write-up but I’ve been slammed with the day job. Revenue was slightly below “estimates” at $ 107 million versus $ 110 million. Subscribers dropped 4% to 336,000 and orders dropped to 1.68 million although average order value increased 2.4% to $ 63.78 and average revenue per customer grew 1.9% to $ 319. These numbers are better when compared to Q4 2019 where average order value, orders per customer, and average revenue per customer grew 10%, 9%, and 19%, respectively.
I was decently encouraged by the revenue figures. I also liked management’s guidance of revenue growth of “at least” mid-teens for the year.
The big problem in some people’s eyes was the increase in marketing spend for Q4 and management’s guidance for higher spend this year. I think that’s silly. The company did a company raise precisely so they could increase marketing spend, which they have not been able to do for several years owing to tight capital.
The company broke out marketing spend by quarter in the presentation. The growth is stark.
The marketing spend increased late in the fourth quarter so the effects likely will not be seen until sometime this year. Again, I think it’s silly to be surprised by marketing spend when they raised money to increase that spend and even sillier to expect revenue to result from that immediately.
The market also did not like the company issuing more equity to Joe Sanberg, the largest shareholder. Once again, I think that’s misreading the situation. Sanberg effectively paid $ 14 / share for his stock and got a bunch of warrants struck at $ 15, $ 18, and $ 20 in addition. I’m of the opinion that if Mr. Sanberg’s investment pays off for him, God bless him. Shareholders will have enjoyed a double from where I first wrote up the company and from where it is today ($ 6.85 closing price). That return works for me.
Speculation of a Takeover:
Andrew Left of Citron Research has been speculating that APRN would be a takeover candidate for Peloton (PTON). He argues that healthy meals would be a synergy for PTON’s exercise offering.
I do not see the merits of PTON buying APRN and I think such a deal is incredibly unlikely. First, PTON I see no synergies. In fact, the businesses basically have nothing to do with each other. Second, PTON has plenty of problems of their own. They do not need a company that is turning around.
I do think that Amazon (AMZN) could be an interesting buyer. They are in the food business. They are obviously in home delivery business. They could leverage APRN’s pre-planned, pre-packaged meal expertise to get to more regular food deliveries. I’m not saying this deal is likely. It just makes way more sense to me than PTON acquiring APRN.
The biggest risk is the marketing spend fails to attract new subscribers. The company will then have burned through a lot of cash with nothing to show for it. Then this company risks being a zero. Inflation can also hurt these guys although they are closer to the actual food producers so they are as management said “somewhat insulated” from inflationary effects.
I think this company is an interesting call option on a turnaround and / or a takeover. They have decent scale, a recognizable brand name, and a plan plus the capital to invest in turning around revenue growth. Like any option, you risk losing your premium, but the upside is many multiples if management can execute here.