After one of the most disappointing IPOs of the year, Blue Apron (NYSE: APRN) will provide its first quarterly earnings report as a publicly traded company Thursday before the market opens. The stock price is down 38% from its IPO price, which itself dropped below Blue Apron's initial price range.
Fears of having Amazon.com (NASDAQ: AMZN) enter the meal-kit market following its acquisition of Whole Foods Market (NASDAQ: WFM) have fueled the downward trend, but that's not the only thing investors need to worry about. There will be plenty to unpack when Blue Apron delivers its earnings results to investors' doorsteps Thursday morning.
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Here's a detailed look at what to watch for when Blue Apron reports its second-quarter earnings.
What the Street is looking for
Analysts are expecting revenue to decline on a sequential basis. While Blue Apron had been growing fast enough to mask the seasonality of its business in the past, management says that's no longer the case.
"We anticipate that the first quarter of each year will generally represent our strongest quarter in terms of customer engagement," management wrote in Blue Apron's S-1 filing. "Conversely, during the summer months and the end-of-year holidays, when people are vacationing more often or have less predictable weekly routines, we generally anticipate lower customer engagement. Our marketing strategies, which are informed by these seasonal trends, will impact our quarterly results of operations."
Analysts still expect Blue Apron to grow revenue year over year, but that growth is relatively slow compared with prior periods.
Watch marketing expenses and customer acquisition
Blue Apron's S-1 filing revealed a ballooning customer acquisition cost for Blue Apron. While it put forward a claim that it spent just $94 in marketing per customer, that was based on total customer acquisitions from 2014 through 2016. If you looked at just the prior year, the average customer acquisition cost came to $463.
Blue Apron should lay off the marketing in the second quarter, but it will need to show a greater ability to retain customers in order to show improved marketing efficiency. In the third quarter last year, Blue Apron showed how vulnerable it is to customer churn, as it lost customers in the quarter. Note that the third quarter is possibly Blue Apron's toughest quarter, with many customers going on summer vacation in July and August.
As Blue Apron looks to pull back on its marketing expenses in the second quarter amid intense competition, it could see a drop in active customers from the first quarter.
The seasonal trend may also show a reduction in average revenue per customer, which is another metric worth paying attention to. As it becomes more and more difficult for Blue Apron to add customers, it needs to find a way to increase its revenue per customer through more orders or more expensive orders.
What to listen for
On the earnings call, analysts will probably ask about the looming threat of Amazon. The online retail giant is already testing meal-kit delivery in Seattle, and it could quickly expand nationwide following the acquisition of Whole Foods Market.
Blue Apron has been able to stay ahead of other start-ups, but it's been struggling recently, as exemplified by its exploding marketing expenses. Look for management to provide an explanation for how it plans to compete with larger companies with much larger marketing budgets and built-in customer bases such as Amazon and Whole Foods have.
Blue Apron's first few weeks as a publicly traded company haven't gone well. Its second-quarter earnings report is a chance to reverse the early results. Investors have a lot of questions and concerns that they want resolved before they're willing to pay a premium for Blue Apron stock.
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John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Whole Foods Market. The Motley Fool has a disclosure policy.