Blue Apron stock plummets to all-time low as new fulfillment facility erodes profits
- Blue Apron's shares fell more than 21% on Tuesday after CEO Matthew Salzberg said its new fulfillment center in Linden, New Jersey was costing more than expected and was a drag on profits, according to Bloomberg.
- The facility has been slower than expected to ramp up, with hundreds of new employees still being trained and the high-tech center potentially months away from being fully operational.
- “This is the worst IPO of the year,” Fast Money trader Josh Brown told CNBC. “The company becomes public and within a week, it’s completely changing the way they do fulfillment. And now they’re blaming the cost of shipping out of a new fulfillment center. At the same time, their revenue growth collapses. They should not have become public. It looks more like an exit from VCs that just wanted some other hands to take this out of their hands.”
It seems a week doesn't go by without a report of another snafu at Blue Apron. Executives and investors face a harsh reality: the business model may be broken. Costs are spiraling out of control, the service is losing subscribers, and revenue growth has all but vanished. It could be hard to turn the ship around at this point.
And now those problems are compounded with the new fulfillment center, which, according to Salzberg, is "performing as [its] worst margin operating center because it is very new," reports CNBC. During last week’s third quarter earnings call, Salzberg said margins at the Linden facility were “significantly lower than the average of our existing centers.”
Despite being outfitted with the latest automation technology, getting the new center up and running is taking longer than expected, reports Bloomberg. The facility delivered just 3% of company volume in the second quarter, 29% in the third quarter, and is now running about half of the company's volume.
Salzberg also announced during the earnings call that the meal kit service is scrapping a previously planned fulfillment facility in Fairfield, California. Instead, Blue Apron’s existing facility in Richmond, California should be able to support West Coast fulfillment for now, according to Salzberg — which it can, considering the number of customers the business is losing.
Blue Apron’s customer count dropped from just over a million in Q1 to 856,000 in Q3. As losses mount and the company becomes increasingly cash-strapped, the pullback in marketing — which is paramount to new customer acquisition — has been problematic. In Q1, pre-IPO, Blue Apron’s marketing expenses were 24.8% of sales. This figure dropped to 16.3% in the most recent quarter.
With less marketing, the company struggles to increase the number of people using its service and grow its revenue base. Consequently, Blue Apron is seeing its dominance quickly erode. Bloomberg, citing analysis from Earnest Research, said in September that Blue Apron’s market share was 43%, compared to 57% last year.
Blue Apron provided some updated guidance on Tuesday, indicating the company was anticipating a higher loss — about $135 million — than it originally expected for the second half of the year. That’s $10 million more than it projected last quarter, and it’s only for six months.
Company stock has plummeted 72% since its June IPO. It probably wouldn't come as much of a surprise if Blue Apron were to utter the three dreaded words, “exploring strategic alternatives,” sometime soon. An outright purchase by private equity or a major grocery chain with deeper pockets — like the recent Albertsons/Plated transaction — might be its best path forward at this point, especially if Blue Apron expects to continue bleeding cash for the foreseeable future.
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