The Only Way to Make Money Off Blue Apron

Blue Apron Holdings Inc.'s (NYSE: APRN) days, despite first debuting on the NYSE as recently as June 28, may be numbered.

Amid rumors of the company having to go public to raise desperately needed cash, it made its debut exactly when tech stocks were tumbling. As if that wasn't hard enough, its debut also collided with the announcement that Inc. (Nasdaq: AMZN) was buying Whole Foods, knocking the company's pre-IPO valuation down from $3.2 billion to $1.9 billion.

Since the stock began trading in the open market, it's down a whopping 36%.

A big chunk of that loss came this week, some might say out of left field.

Left field is, of course, where Amazon lurks before pouncing onto center stage and upending whatever game everyone's playing. The business that Blue Apron thought it controlled got punched in the gut by what Amazon just did.

Here's what it means for Blue Apron, and how to profit from their almost inevitable end...

Why the Service Left a Bad Taste in My Mouth

I admit I tried Blue Apron - not the stock mind you, I wouldn't touch that with a 10-foot pool. I tried the meal delivery service.

It wasn't my idea. A couple who I'm good friends with were telling me they liked following Blue Apron's recipes and cooking together. They (and their two children) thought the dishes were delicious, so they "gifted" me a box of three meals.

Blue Apron encourages subscribers to gift a box of meals to friends and even strangers. The idea makes sense: you get a box of three different meals complete with every ingredient you'll need, individually wrapped, with recipes for three meals - in my case, for two people - packed in ice and delivered to your front door.

I opened the box I got about a week later, admired how everything was packed (except for the waste factor), followed the mostly easy recipes and mostly enjoyed the meals.

What happened next was interesting.

Without intentionally signing up for the service, a week later I started getting once-a-week deliveries of Blue Apron boxes. The billing magically showed up on my American Express.

At less than $10 per meal per person, I went with it to see what else they would send me.

The bottom line is this... I'm a decent chef and I like to cook. I found the Blue Apron recipes fairly easy, but the time to make most of the dishes took longer than I would have preferred.

While I could get over that if the meals were interesting and exotic enough, which I will happily say that some were, the fact is many of them ended up being disappointing in the taste department.

And being single, always cooking for two when it was often just me resulted in leftovers, or (who would have guessed) eating more than I should have. Maybe that explains that extra 10 pounds I'm carrying around.

After two months, or about eight deliveries, I cancelled the service. Except I never got confirmation that my cancellation notice was received, and boxes kept coming.

Last week, again, I followed the instructions to cancel the subscription, adding a curt note in the email. Hopefully, this time it sticks.

They won't get paid because I've already notified American Express, who are amazing at taking care of issues like this. So Blue Apron, which is losing money, will be wasting more of their money if they keep sending me gifts.

What's telling in my little story is that cancelling Blue Apron subscriptions is almost epidemic.

In Wednesday's article, I listed some frightening retention rates for meal-kit deliveries and said that should be a huge concern for Blue Apron and its shareholders.

But what's a much bigger concern for Blue Apron is what Amazon put out this past weekend.

How to Profit from APRN

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An Amazon subsidiary announced it filed a July 6 trademark application for "prepared food kits... ready for cooking and assembly as a meal." The trademarking move included the slogan, "We do the prep. You be the chef." Catchy.

While Amazon's gearing up to sell its own line of meal kits, it's been selling meal kits from third-party companies via its Amazon Fresh grocery delivery service since last fall.

One product, food behemoth Tyson's "Tyson Tastemakers" kits, features dishes like pork belly pad Thai and clock in at $10 per serving, almost exactly what Blue Apron charges. Amazon Fresh customers can also order meal kits from the Martha Stewart-Marley Spoon collaboration.

But the trademarking is a nail in Blue Apron's coffin, and probably every other wannabe household recipe-in-a-box purveyor. It's Amazon clearly saying they're going head-to-head in this new market with their own private label offerings.

The big problem that covers several smaller problems for Blue Apron is that Amazon doesn't have any of the problems that a startup would have.

Blue Apron loses money every day. Amazon makes a ton of money every day.

Blue Apron's struggles are just one part of the "Retail Ice Age." More than 3,591 stores have already shuttered their doors in 2017, and Shah estimates 50 companies will file for bankruptcy by 2018. He keeps his readers updated on the situation, including how to play retail's accelerating decline, over at Wall Street Insights & Indictments, his twice-weekly newsletter. To get Shah's latest research and recommendations yourself, just click here. It's completely free.

The cost of bringing on new subscribers is killing Blue Apron. Amazon charges new Prime subscribers $99 a year to just be subscribers. Amazon's retention rate of those paying Prime members isn't broken out anywhere in Amazon's filings, but it's believed to be in the range of 85% or higher.

If Blue Apron thinks just because it's the largest meal-kit delivery company in the United States and that gives it any kind of advantage over Amazon, it's sadly mistaken.

Of course, Amazon's infrastructure is scalable on a massive basis. Its delivery prowess is at the lowest cost for delivery service in the country, given their preferential rates with every carrier where Amazon is their biggest customer. On top of that, it's building its own delivery service, very quickly.

That's what Amazon does. It builds scale and drives down costs. That's why anything Amazon targets and every business Amazon sets its sights on, Amazon will eventually dominate.

The meal delivery kit business is no different.

Blue Apron's going to get cooked.

It's not too late to make money on Blue Apron's stock heading to zero. I was waiting for some volume in the options markets for APRN, and I finally got it.

But the only chance Blue Apron has of surviving is being bought out, and as its stock price keeps falling, it is making it cheaper and cheaper to buy it lock, stock, and barrel.

Someone just might make a play for the company.

I say "might" because I don't see who would want to go face to face in the ring with Amazon. And I doubt Amazon would bother buying Blue Apron when it's got its own foot already in the door. But I would be crazy to not entertain the possibility.

That's why we're going to play Blue Apron wisely.

You'll remember my lesson on modified straddles from earlier this month, and that's exactly what we're going to do here. APRN is under frontal assault and is headed even further downhill. How low it could go is anybody's guess. That's why I recommend APRN Oct. 20, 2017, $5 puts (APRN171020P00005000). I would buy them around $0.50 to $0.60, if I could.

To take into account the possibility of getting bought out, I'm also recommending a speculative upside action trade. APRN Jan. 19, 2018, $9 calls (APRN180119C00009000) might also be found for around $0.50 a pop, and they could rocket upwards if there are rumors of a buyout.

Go get 'em.

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The post The Only Way to Make Money off Blue Apron appeared first on Wall Street Insights & Indictments.

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

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