Shares of Blue Apron (NYSE: APRN) were tumbling for the second straight day in a row today. After investors lost their cool when the stock fell below $1 for the first time ever yesterday, shares plunged today after the Federal Reserve said it would raise interest rates once again. As a result, Blue Apron shares closed down 13%.
The stock market widely sank on news that the central bank would raise the federal funds rate. Lifting the benchmark borrowing rate tends to pressure stocks for a number of reasons. First, it signals that the Fed is worried about the economy and inflation overheating, so it wants to cool it off by raising borrowing rates. It also makes debt more expensive both for companies and consumers, dissuading corporations from taking on debt or consumers from racking up credit-card interest or making big purchases. Finally, it makes bonds more appealing to investors as interest rates on bonds rise.
For struggling, loss-generating companies like Blue Apron, the news is especially problematic because it makes survival more difficult. Blue Apron has lost $67.9 million in free cash flow this year, and those losses are expected to continue at a similar pace in the current quarter. The company has $162.9 million on its balance sheet, so it doesn't need to borrow money immediately, but it does have $127.8 million due on a revolving credit facility in August 2019, and the interest rate on it is likely to go up with today's hike. Though the company could enter into a new credit facility next year, the interest rate is likely to be more expense given the continuing rise in the fed funds rate.
Through the first nine months of the year, Blue Apron racked up $5.6 million in interest expense, slightly more than 1% of its revenue for that period. While that's a minimal amount, the company needs to save money wherever it can.
Today's sell-off comes just after the stock fell 11% yesterday on worries that it could be delisted from the New York Stock Exchange if its shares don't rise above $1 in the next 30 days. Management says the company is on track for adjusted EBITDA profitability in 2019, but investors are clearly losing their patience. With the stock approaching $0.75 now, it's going to take a meaningful piece of good news to get it back above $1. At this point, that's far from guaranteed.
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