Is HelloFresh Worth a Closer Look as an Investment?

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Written By Kevin MacDonald

HelloFresh SE (OTCPK) is a publicly listed meal-kit delivery company operating in multiple countries. The company delivers pre-prepared ingredients and recipe cards to customers, who then cook the meals themselves.

Despite its global presence, HelloFresh struggles with profitability, boasting a net profit margin below 0.1% and increasing SG&A expenses. This analysis aims to determine whether HelloFresh is a viable investment.

HelloFresh SE’s Business Model and Operations

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HelloFresh, headquartered in Berlin, is the largest meal kit provider in the US and operates in various other countries, including Canada, New Zealand, Germany, and many European nations. The company’s IPO in 2017 and its large customer base confirm the demand for its service.

However, the business model involves significant costs for personnel, marketing, logistics, and preparation, all of which must be covered by the price customers pay for meal kits.

Cost Structure and Value Proposition

HelloFresh’s meal kits typically cost between $60-$70 for six portions (three two-person meals) per week, translating to about $10 per portion. This cost is comparable to cheaper restaurant food, depending on the location. HelloFresh argues that its sustainably sourced, high-quality ingredients add value to the offering.

The company also provides diet-specific packages and rapid meal options. However, the high costs and operational expenses pose challenges to profitability.

Financial Performance and Challenges

HelloFresh has faced profitability issues, with a significant drop in TSR by 70% over the past year. The company’s net profit margin is below 0.1%, and it posted a net loss of €40 million for the LTM period. Despite achieving net profitability during the height of the zero interest rate policy (ZIRP) era (2020-2022), the company struggled in 2023, recording only €18 million in net profit against €7.6 billion in revenue.

The company’s inability to scale effectively is evident from the corresponding rise in SG&A expenses with revenue growth.

SG&A and SBC Expenses

HelloFresh’s SG&A expenses have ballooned, with stock-based compensation (SBC) rising from less than €25 million in 2019 to nearly €90 million in 2023, despite low profitability. The company’s first-quarter 2024 results show continued struggles, with group orders down and revenue up, indicating price hikes to retain customers.

Management’s focus on acquiring higher-quality customers suggests ongoing challenges in customer acquisition costs (CAC).

Market Position and Competitive Landscape

HelloFresh operates in a highly competitive market, dominated by established grocery players. The company’s strategy involves significant marketing spending to retain and attract customers, often resorting to tactics such as illegal text messaging.

Despite its claims of strong operational cash flows, HelloFresh’s negative net profit and reliance on non-IFRS measures like AEBITDA highlight its financial instability.

Management’s Strategy and Market Challenges

HelloFresh’s management aims to maintain stable CAC while acquiring higher-value customers through predictive modeling. However, the company’s reliance on marketing spend and experimentation with various strategies indicates an uncertain path to profitability.

The grocery and food delivery market’s low-margin, volume-oriented nature further complicates HelloFresh’s efforts to achieve sustainable profits.

Valuation and Investment Thesis

Credits: DepositPhotos

HelloFresh is currently trading at less than 0.2x sales and revenues, reflecting the market’s low confidence in the quality of these earnings. Traditional earnings-related KPIs are high, with P/E negative and EBIT over 40x. The company’s high SBC relative to net profit raises concerns about its investment viability.

Given HelloFresh’s financial challenges and market conditions, a sum-of-the-parts (SOTP) valuation approach discounted by at least 50% is appropriate, leading to an estimated value of around €2 per share. Despite being “cheap,” the company’s lack of profitability and high operational expenses make it a risky investment.


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