Is HelloFresh Stock a Buy After More Than Halving in Price This Year?

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Written By Nathan Goldstein

HelloFresh is a leader in the meal kit delivery industry. The company grew its US market share to over 75% in 2022 and enjoys healthy gross margins of over 60%, according to Seeking Alpha data, TTM.

Industry Challenges

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The meal kit delivery industry faces significant challenges with customer retention, which ranges between 10% and 20% after 6 months from first trials, according to Bloomberg. This compares unfavorably with the restaurant and food delivery industries, which have retention rates exceeding 70%.

Financial Overview

HelloFresh registered $8.25 billion in revenue in the Trailing Twelve Months, according to Seeking Alpha data. The company’s Gross Profit during the same period was $5.30 billion, signaling healthy margins of more than 60%.

However, the business also recorded $5.22 billion in “Selling General & Admin Expenses” in the TTM, resulting in a TTM Net Income of negative $42 million.

Marketing and Profitability

HelloFresh has managed to achieve profitability in the past, notably from 2020 to 2023. However, Net Income during this time has always been modest, between 1% and 9% of total revenue, and has declined from $450 million in 2020 to $21 million in 2023.

The company’s financials indicate that management faces a choice between growing revenue and achieving profit. The business model relies heavily on promotions to acquire and retain customers. Marketing expenses have been on a steady increase, tracking at above 23% in Q1 2024.

Customer Retention Issues

HelloFresh operates in the meal kit delivery market, which has a total addressable market between $20 and $25 billion in the US alone. The company had a market share of roughly 75% in 2022, growing by acquiring competitors such as Green Chef and Factor75.

However, customer retention rates for meal kit deliveries are low, between 10% and 30% after 6 months, compared to over 70% in the food delivery and restaurant industries.

Market Valuation

HelloFresh has lost more than 90% of its value since its 2017 IPO and its all-time high in 2022. The company has a market capitalization of $1.13 billion, a P/S ratio of just 0.14, and a history of stable shares outstanding, making it unlikely that management will opt to dilute shareholders significantly.

Potential Developments

Potential positive developments for HelloFresh include pivoting into more profitable adjacent industries, which could reduce reliance on marketing expenses to propel their core business. Additionally, an increase in customer retention rates in the meal kit delivery industry could also be very beneficial for the company.

The company’s excellent management in expanding margins and market share could help it evolve more sustainably.

The Balance Between Growth and Profitability

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HelloFresh is a strong company operating in a challenging industry, relying heavily on customer incentives for growth. This dynamic forces the company to choose between growing revenue and focusing on profitability.

Given the company’s current situation, its performance will depend on how it navigates these industry challenges and explores new opportunities for growth and efficiency.

Investors should carefully weigh up both potentials and risks before investing in HelloFresh stock.


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