Groupon Inc. shares slid 43% Wednesday and Blue Apron Inc. was down 22%, after far weaker-than-expected earnings from both companies revived concerns about the sustainability of their business models.
“We see the 4Q results as increasing the likelihood of a takeout/merger , with our view that Groupon and Yelp YELP, -1.53% would make a value-creating combination and that IAC IAC, -0.35% can be a trusted steward to manage,” the analyst wrote in a note to clients, reiterating his neutral rating on the stock.
“There are two things that possibly happen with Groupon,” he said. “One is you have a customer that was paying full rate, but is now paying less and is just cutting margin away from the merchant. The second is that the people who are signing up are now occupying spaces that full-paying customers were going to use.”
Blue Apron’s blues Blue Apron’s APRN, -17.62% problems lie in its cost structure, with manufacturing and marketing costs elevated by the basic requirements of a business that delivers fresh food ingredients to customers in expensive packaging. The company has never made a profit, hurt by failed partnerships, that include a deal to sell its meal kits at Costco Wholesale Corp. COST, +0.30%, among other issues.
“While we’re confident that Blue Apron will drive leverage in COGS, marketing, and PTG&A expenses in FY:19, we believe visibility into the timing of a potential reacceleration in customer growth remains limited as many of the company’s new initiatives are just beginning to ramp up,” said Stifel analysts led by Scott Devitt, reiterating their hold rating on the stock.