Blue Apron – No bottom

Blue Apron shares are probably going to zero.

• Another set of awful results has forced the board of Blue Apron to seek “strategic alternatives” which in English means either someone buys the company, or it goes out of business.
• The problem is that I can’t see anyone who would be foolhardy enough to buy the business.
• The last time I looked at Blue Apron was 16^th November 2018 when the share price was $17.55 (see here) and very little has changed other than the shares which have lost 78% of their value.
• This is clear in the Q4 19 results which showed a 33% decline in revenues YoY driven by a 36% decline in customers.
• In this kind of business, this is a death sentence and HelloFresh is slowly but surely choking the life out of Blue Apron.
• In contrast, Hello Fresh shares are up 148% over the same period and most recently upgraded its revenue guidance for Q4 19 which had already been targeted at 36% YoY in constant currencies.
• It is patently clear where the market is going.
• HelloFresh now more than twice Blue Apron’s size and has no debt.
• Consequently, HelloFresh is in a position to take all of Blue Apron’s customers or forcibly acquire the company at some point in the near future.
• This is a classic case of the network effect in action and of the rule of thumb, I proposed 4 years ago (see here).
• This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making a profit.
• HelloFresh has executed well and gained share hand over fist in the US and is now making money as a result.
• By contrast, Blue Apron has lost a lot of market share and is extremely unlikely to ever make money or generate cash.
• Furthermore, the position that Blue Apron finds itself in is now so dire, that I doubt that anyone in their right mind would either buy the company or pump in fresh capital.
• HelloFresh could buy the company, but I see no reason why it should as it is doing such a good job at eating up all customers that Blue Apron is shedding.
• There is no reason to buy a company when one can easily take all of its customers without having to pay shareholders anything or execute a messy merger.
• Hence, I think that there is no bottom to this share price and it is the debt holders who are likely to end up with whatever assets remain.
• Anyone who has been brave enough to hold on this far should head for the exit at any price.