The Pros, Cons Of Blue Apron After Its Post-IPO Plunge

Blue Apron Holdings Inc APRN shares never really took off after a much-publicized late June IPO. The stock ended Thursday's session at $3.80, down 62 percent from the $10 Blue Apron closed with on its debut date.

Blue Apron reported third-quarter results before the open Thursday.

Barclays downgraded the shares of Blue Apron from Equal-weight to Underweight and reduced its price from $5 to $3. The downgrade was attributed to Barclays' view that the path to free cash flow for Blue Apron — before exceptional items — will take longer than anticipated.

At the time of writing, shares of Blue Apron were up 1.45 percent at $3.86.

A Smaller Marketing Budget In Q3

Blue Apron continues to make progress on the transition to the company's Linden, NJ facility, which currently services 50 percent of its total national volume, analyst Ross Sandler said in a Friday note.

The company is using automation to render a broader weekly menu selection, the analyst said.

With Blue Apron reducing its marketing spend in the third quarter, Sandler said customer growth declined, but contribution profit increased by 17 percent year-over-year.

Blue Apron's 10 percent revenue outperformance in the third quarter versus the consensus came due to a lower mix of new customers driving order frequency by 6 percent and ARPU by 8 percent, according to Barclays.

Analysts Watching Free Cash Flow

The meal kit company's number of customers fell 6 percent, more than the projected 3 percent drop. Barclays expects the numbers to fall further in the fourth quarter due to reduced marketing spend and consistent churn.

Increased costs arising from the launch of the Linden facility and product expansion initiatives led to a 23 percent decline in gross profit. The free cash flow burn remained at an elevated rate, but is expected to start improving in the fourth quarter, Sandler said.

Reviewing Q3 results, revenues exceeded Barclays' expectations by 10 percent, but the company burned $78 million in free cash flow at the same time, Sandler said.

"We move to UW, but could get more constructive if we see FCF & unit economics stabilize, which may play out in 2018."

Barclays views M&A with a food retailer as posing an upside risk, albeit an unlikely one given Blue Apron's $760 million market cap and dozens of private peers. 

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Photo courtesy of Blue Apron.