Can Blue Apron's New CEO Turn Things Around?
Blue Apron (NYSE: APRN) has appointed former Etsy (NASDAQ: ETSY) executive Linda Kozlowski as its new CEO. Kozlowski will take over for Brad Dickerson on April 8.
The meal-kit company has struggled to find its feet ever since going public in 2017. Shortly after its market debut in June of that year, co-founder Matt Salzberg stepped down as CEO, giving way to then-CFO Dickerson.
After a year-and-a-half as CEO, Dickerson hasn't made much progress in turning things around. Shares are down 48% over the past 12 months. Dickerson set a goal of break-even adjusted EBITDA for the fourth quarter last year. He didn't quite make it, but the company says it should be break-even on the non-GAAP basis for the first quarter and the full year 2019.
But meeting the mark on that singular metric doesn't mean the company's in good health. Some might argue that adjusted EBITDA doesn't mean anything at all. Indeed, Blue Apron's stock fell 70% during Dickerson's tenure as CEO.
Blue Apron faces some major hurdles as it looks to find a profitable business model. Is Kozlowski the woman for the challenge?
Kozlowski's turnaround track record
Kozlowski formerly worked as the COO of Etsy. She was there when the company cleared out most of the c-suite and decided to truly focus on profits in early 2017. Along with new CEO Josh Silverman, Kozlowski helped Etsy start turning a profit immediately. The company reported net income of $11.7 million in the second quarter that year after posting a $400,000 loss in the first quarter.
The successes continued as gross merchandise sales and revenue accelerated through 2018 and profit margins expanded. The company also saw an acceleration in the growth of active buyers on the platform and the amount each buyer was purchasing on its platform. That enabled it to raise its pricing for sellers from 3.5% to 5% last year, producing better revenue and profit margins for the company.
Kozlowski was instrumental in turning around a company that was operating at a loss, experiencing slowing revenue growth, and struggling to grow the number of buyers on its platform. Blue Apron has all those issues and more. Blue Apron's active customers and revenue are actually declining as the company follows Dickerson's objective of focusing on high-value customers only.
Can Kozlowski save Blue Apron?
Blue Apron faces some big challenges in its path to profitability. For the company to be profitable it needs to either reduce customer acquisition costs or improve its customer lifetime value.
Cost reductions might be hard to come by. Blue Apron's already taken steps to cut costs through automation and it just went through a round of layoffs in November to further reduce its overhead expenses.
Those layoffs resulted in just a 6% reduction in the company's product, technology, general, and administrative expense line in the fourth quarter. That number will likely climb higher in the first full quarter following the layoffs, but it's still well below what Etsy saw in its first full quarter following its layoffs after the CEO change in 2017. There's just not that much more fat to trim at Blue Apron.
Kozlowski will have to improve marketing efficiency to find higher value customers. That's something Dickerson says the company is already focusing on, but his efforts haven't shown up in Blue Apron's results. Customer count continued to fall in the fourth quarter, and average revenue per customer climbed a mere 1.6% year over year.
It's not that Dickerson's idea is bad; the execution is simply lacking. Still, it's not evident Kozlowski can do anything better. With competition from big grocery companies, finding new customers and getting them to stick around is increasingly difficult.
What Kozlowski can do is take a slightly different approach. Focus on high-value customers, but not necessarily on profitability. Spend more on marketing to attract more and better customers. If Blue Apron can return to customer and revenue growth, show increased revenue per customer, and higher lifetime value per customer, it becomes a lot more attractive as an acquisition target. That may be Blue Apron's best bet to long-term survival.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool has a disclosure policy.