Scott Eisen/Getty Images News

Scott Eisen/Getty Images News

Blue Apron (NYSE:APRN ) announced incremental equity financing on Monday (May 2) that was similar to past financings. Largest shareholder RJB Partners (Joe Sanberg) bought $20 million of shares at $12/share with a commitment for another $20 million in Q2. CEO Linda Findley invested $500,000 at the same terms.

The company also refinanced its existing term loan with a new $30 million senior secured facility with Allianz Global Investors that matures in 2027. The company did not release the interest rate on the new debt but said the new money "lowers our overall debt obligations".

I am of two minds of these deals. On the one hand, I think it's great that the company has pushed out its debt maturity. No matter what, extending out the debt is good.

Bolstering the cash cushion with the equity can also be seen in a positive light. It likely gives the company runway through the end of next year. On the other hand, the need for that cash tells me that either the marketing push is not resulting subscribers fast enough to offset the marketing spend, labor, freight, and food inflation are hurting margins or both.

HelloFresh (OTCPK:HELFY) reported better than expected revenue growth for its Q1, with nice subscriber growth, higher average order value and stable orders per customer. Contribution margin dropped by 300 basis points from 28.2% to 25.2%, a reflection of the cost inflation the company previously communicated.

Hellofresh's numbers can be encouraging or discouraging for APRN. Its subscriber growth could be coming from market share gains from APRN rather than growing the pie. Obviously, the latter is preferable to the former. Moreover, HelloFresh's rather successful margin preservation can be encouraging or discouraging. Are they showing it's possible to navigate the inflationary environment or it's only possible at scale?

The good news is that APRN has been priced as an option since I started covering it. At worst, the expiry of that option has been extended, thereby making in more valuable. I believe the stock is reflecting that so far.

I think the biggest risks are the same. Management is using equity raises to market aggressively for the first time in years. That spend has to be productive. Not only do subscribers have to grow, they have to grow at acceptable margins and in a relatively quick timeframe. The days of acquiring subscribers at any cost are over for just about any business, all the more so for APRN...even with continued support from its largest shareholder to date. I hope that this capital raise is not a sign that the current marketing plan is not panning out at the right pace. The good news is that both he and the CEO are investing in this current round. Hopefully, that signals that they see signs of some effectiveness in growing subscribers.

As I said above and in my previous articles on this company, I view this stock as call option on a turnaround or an acquisition by a strategic. I continue to believe that. I also believe the debt refinancing and equity capital certainly extend the runway and at the very least take bankruptcy risk away from this company at least through the end of next year.

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Disclosure: I/we have a beneficial long position in the shares of APRN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.