Contact: Scott Denne
Blue Apron has taken the lid off its burgeoning food-delivery business, and uncertainty is on the menu. The company publicly unveiled its IPO prospectus on Thursday night, showing a rapid rise in annual revenue for the quasi-subscription grocery supplier but a lack of clarity on customer retention that Wall Street might not be able to stomach.
Last year’s annual revenue popped 2.3x above 2015’s total to $795m. And its improving gross margins already outperform traditional competitors. The 31% it posted last quarter puts it on par with its high-end cousin, Whole Foods, while traditional grocers are typically in the 20% neighborhood.
But other costs – administrative, development and technology – moved in tandem with revenue. In that way, it looks like a typical tech offering. Yet on a quarterly basis, its expenses – particularly marketing – are lumpy, which will likely be scrutinized.
Marketing costs jumped 63% sequentially in Q1 after a 25% decline in Q4. Even on a year-over-year basis, the growth of its marketing doesn’t fit a discernable pattern. On top of that, the returns on that investment are diminishing. Blue Apron’s revenue grew just 42% last quarter and for every dollar it spent on marketing, it notched $4.04 in revenue, the lowest return of any quarter in its history and $2 less than the previous average.
Declining ROI would be digestible if it were temporary. Blue Apron runs a no-commitment subscription service, so high upfront marketing costs to land customers with large lifetime value is part of its model. The company claims that 92% of Q1 revenue came from repeat orders. But it’s not clear how many of those already are, or will continue to be, regular clients. It’s also not clear whether Blue Apron faces rising retention costs or rising acquisition costs, or both. Any way you slice it, Blue Apron could struggle to build the kind of predictable business that won’t give investors heartburn.
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