What Blue Apron’s S-1 Numbers Don’t Want to Tell Us

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Blue Apron’s S-1 numbers are interesting in so far as they quite clearly don’t tell the whole story, and raise the question as to why.

Bloomberg:

Meal-kit delivery company Blue Apron Holdings Inc. is hoping it can stand out to public investors in an increasingly crowded marketplace for on-demand food.

The company filed for an initial public offering in the U.S. Thursday, after reportedly delaying listing preparations while it worked to improve financials. While revenue more than doubled last year, Blue Apron is still losing money as it fights to win customers from competitors such as HelloFresh AG and Sun Basket Inc. as well as publicly listed giants like Amazon.com Inc.

Gaining share in the busy U.S. food-delivery market is expensive: Blue Apron spent $144 million on marketing last year, or about 17 percent of its total operational spending. The company has been working to reduce the cost of acquiring customers, aligning that outlay more closely with the value of long-term subscribers, a person familiar with the matter said last year.

Blue Apron grew from $341 million to $795 million (+133%) in 2016, with losses of $55 million. Compare this to HelloFresh, which in contrast to Blue Apron operates internationally in several regions around the world, growing from €305 million to €597 million (+96%). (German)

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Average customer acquisition costs (CAC) for Blue Apron, as reported in the S-1, were $94.

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But here’s the problem: Going for average in the period between Q1/2014 and Q1/2017 not only means showing off a lot of cohorts but also hides the recent spike in CAC in Q1/2017.

Recode:

In the filing, the company claims its cost to acquire each customer — or cost per customer — is $94. But it uses the wide timeframe of the beginning of 2014 through the first quarter if 2017 to calculate the average. […]

If you want a more recent number like, say, over the last 12 months, you get cost per customer of around $460 — not $94 — if you divide marketing costs over that timeframe by customers added during that period. Whoa!

Whoa indeed.

Q1/2017 saw a record marketing spend of $60 million. What happened here? Does Blue Apron see an increase in customer churn the company wanted to balance out with an increased marketing spend? (Take a look, the word “churn” didn’t make it into the S-1.) Did the company hope to create a spike in new users for a great IPO growth story? Or was it something else alltogether? We don’t know.

And according to the S-1, Blue Apron would rather like to keep it this way.

Industry analyst Ben Thompson on the topic (paywall):

Blue Apron shows revenue per customer by cohort, but insinuates that the cost per customer (CPC, aka Customer Acquisition Cost — CAC) is identical across cohorts. That seems highly unlikely (more on this in a second). Moreover, while Blue Apron gives financial numbers going back to 2014, the company only gives user and order numbers going back to Q1 2016, which means we don’t know how many of the customers from older cohorts are still around. What is Blue Apron hiding?

In fact, even with the limited information Blue Apron deigned to give us, the answer seems to be that they are hiding a lot. Over the last 12 months the company has added at most 387,000 new customers, presuming zero churn (a word that doesn’t appear in the S-1, I’d note), which seems unlikely. Meanwhile, over the same period Blue Apron has spent $179 million in marketing. That implies a CAC of $463, a number that is nearly 5x the number in the above graph. In other words, customers are becoming vastly more expensive to acquire over time, at least for the only period that Blue Apron bothered to give us sufficient data to calculate (and, as hinted at above, we have no idea how long customers actually stick around).

This at least raises an eyebrow.

Business Insider on more:

The company seems to be gaining traction with consumers. Some 1 million customers paid for Blue Apron orders in the first quarter this year. That was up from 649,000 customers in the same period last year.

But average order sizes were down slightly year-over-year, falling from $59.28 in the March quarter of 2016 and $57.23 in the same quarter of 2017. And the average number of orders per customer per quarter dropped from 4.5 in the first quarter last year to 4.1 in the most recent period.

Average order sizes and orders going down over time is not surprising as the company gains more mainstream users. That Blue Apron hasn’t found a way yet to offset that by giving their customers more products to buy is interesting. In theory, a company like Blue Apron or HelloFresh should be able to build strong brand loyalty and thus be able to branch out easier. But both the market (kitchen tools) and the wine subscription seem to not yet have become substantial to the business.

Both Blue Apron and HelloFresh have currently one million customers.

Dan Primack at Axios on some additional background on the company:

Investors: The company has raised over $190 million in VC funding, most recently at a $2 billion post-money valuation. Shareholders include Bessemer Venture Partners (23.8% pre-IPO stake), First Round Capital (10.5%), Stripes Group (6.5%) and Fidelity Investments (6.2%).

Notable number: Blue Apron says that first quarters are its busiest, as people slow their deliveries during summer and holiday seasons. But the company flipped from $3 million in net income in Q1 2016 ($172m in revenue) to a $52 million net loss in Q1 2017 ($245m rev). Part of this is explained by a $45 million boost in marketing spend, while the rest seem stuck inside of an amorphous “product, technology, general and administrative” line. A source declined to specify, except to say the difference wasn’t caused by anything “nefarious.”

More on this topic:

5 comments

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