Flawed Companies You Should Avoid At All Cost Part II

There’s a couple of ways to make investing a little bit easier.

Avoid companies with certain business models.

Last week, we told you about companies who condition their customers to expect coupons — and used Bed Bath & Beyond as an example.

This week, we’re calling out another type of company.

Those who lose money but try to make it up with volume.

We’ll give Blue Apron (NASDAQ: APRN) as an example.

(Blue Apron is also a longtime whipping boy of ours. One we’ve recommended and successfully shorted on several occasions back in 2019.)

For those who don’t know, Blue Apron is a meal-kit delivery company. They ship pre-selected meals straight to your door. They give you the exact ingredients. You cook the meal. Super convenient.

It was one of the pioneers within the meal delivery service space. So it initially had majority market share.

However, there were no barriers to entry. So hundreds of companies spawned to compete with them.

You shouldn’t be surprised to know that its unit economics were atrocious.

First, its food delivery is a low margin business. Blue Apron is held hostage by the variable costs of food and drink prices. Then it has to worry about the cost of shipping big boxes with ice packs to keep the food cold and fresh. It’s a nightmare in and of itself.

Gross profit margins have been around 35% for the last 5 years and haven’t budged.

Second, APRN has conditioned its customers to wait for coupons and discounts like Bed Bath & Beyond. Meaning it loses money on every order…

Third, they have a hard time bringing customers back.

Below is a chart from its most recent investor presentation. And tells you how many weeks it takes Blue Apron to win back customers after their previous order.

(Source: Blue Apron)

Look to the furthest left column.

It shows you it takes nearly 1 1/2 years to get that customer to order again after their first time. Ouch.

It gets better over time as the customer comes back a second, third, and fourth time. But not by much.

So how has Blue Apron attempted to gain favor in the eyes of Wall Street?

Make it up on volume — a.k.a. revenue growth.

That was all Wall Street cared about over the past 14 years… in a world of 0% interest rates and free money.

And that’s what they told investors they were working on. Something along the lines of, “be patient… we’re choosing to lose money in order to grow revenue and market share.”

But the truth is… Blue Apron couldn’t even do that.

It partnered with Weight Watchers. Costco. And Beyond Meat.

All failed. And failed early. Those trials all lasted less than a year.

Blue Apron’s revenues are down 50% over the past 5 years. The one thing Wall Street punished.

As a result, shareholders have been obliterated. Shares are down 98% since it went public — from a high of $150 to $3 today.

Blue Apron has been one of the easier short calls we’ve made over the past few years.

It has never made a profit in its history. And it doesn’t look like it’s coming anywhere close to doing so now.

They’ll try and make it up on volume. But will continue to lose more money because of it.

Trying to get profitable by making it up with volume is another flawed type of company you should avoid at all cost.

Good investing,

Lance

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