Blue Apron has faced a challenging year with a significant decline in its stock price. Year-to-date, Blue Apron’s shares have fallen by 27%, and the company’s market capitalization implies a potential risk of near-term bankruptcy. In fact, the company’s market cap is down over 98% from its initial public offering (IPO) price, currently standing at $40 million compared to its 2022 revenue of $458.5 million. This worrisome situation is reflected in Blue Apron’s price-to-sales multiple, which is a mere 0.04x, signaling the possibility of a Chapter 11 filing in 2023. Additionally, the company is burdened by a total debt of $60.1 million.
One of the key factors contributing to Blue Apron’s decline is its dependence on selling stock to meet its quarterly cash needs. Over the past three years, the number of shares outstanding has ballooned by 215%. To address its liquidity challenges, the company plans to sell up to $70 million worth of shares through an at-the-market equity program. This offering represents more than 175% of Blue Apron’s current market capitalization. However, even with these measures, the company’s cash burn from operations for the fourth quarter stood at $23.4 million.
Blue Apron’s financial position is concerning. By the end of the fourth quarter, the company held cash and equivalents of $33.5 million, which is only enough to sustain its operations for less than two quarters, considering its cash burn rate. Given these circumstances, it’s difficult to see a strong bullish case for the company. Blue Apron’s current business model has proven to be detrimental to shareholder value creation, as it relies heavily on dilution to bridge its liquidity gap. Shareholders face the risk of further dilution without a clear path to achieving positive cash flow, which could ultimately lead to bankruptcy.
Blue Apron is aggressively pursuing cost-cutting measures, aiming to achieve $50 million in annualized savings. By reducing expenses and focusing on upselling higher-value products, such as Premium Recipes, Customization Options, and Add-ons, the company hopes to boost its gross margins and maximize liquidity. In the fourth quarter of 2022, Blue Apron reported revenue of $107 million, meeting consensus estimates and benefiting from increased average order values due to price increases and upselling. However, the number of total customers declined by 11.2% compared to the previous year.
While cost-cutting initiatives have helped extend Blue Apron’s cash runway, they are not sufficient to address the company’s underlying challenges. There are limits to how much a company can shrink its operational footprint or raise prices without adversely affecting its business. Blue Apron’s reduced marketing spend during the fourth quarter led to a decline in customer numbers, highlighting the importance of effective marketing efforts. Nevertheless, the current quarterly marketing cost is still significant, representing almost 50% of Blue Apron’s market capitalization and over 50% of its cash position.
