The pandemic lockdowns accelerated the use of food delivery and takeout services. Companies like Uber Technologies Inc (NYSE: UBER), Uber Eats, Maplebear Inc. (NASDAQ: CART), Instacart and Door Dash Inc. (NYSE: DASH) reintroduced consumers to eating at home, not to mention gig work. Meal kit delivery services like Blue Apron Holdings Inc. (NASDAQ: APRN) and HelloFresh SE (OTCMKTS: HLFFF) experienced a revitalization and resurgence of their niche at-home meals industry. They combined the convenience of delivery with the do-it-yourself nature of healthy home cooking. Customized meal kits were delivered with pre-portioned ingredients and easy-to-follow recipes to prepare and eat at home. No doubt, it awakened the internal chef in many consumers. These stocks saw their shares skyrocket to the moon in 2021 and crash like a meteor in 2022.  

And Then There Was One

On September 29, 2023, one such company saw its stock surge again when the Wonder Group announced it was acquiring Blue Apron at a 137% premium at $13.00 per share for $103 million. This move made investors ponder who could be next in line. There is only one pure-play publicly listed at-home meal kit delivery service, HelloFresh.

U.S. Market Share of 78%

Headquartered in Berlin, Germany, HelloFresh has operations in the United States, Canada, Germany, France, Luxembourg, the Netherlands, New Zealand, Switzerland, Sweden, Denmark, Norway, Italy, Japan and the U.K. HelloFresh is the largest meal kit delivery service in the world and has a 78% market share in the United States. It collects 60% of its revenues from the US and has a $4.57 billion market cap.    

Normalization Bottoming Out

On August 10, HelloFresh released its fiscal second-quarter 2023 results. The company reported a GAAP EPS of EUR0.35.  Revenues fell 2% to EUR1.92 billion. Active customers were 7.3 million. The company delivered 254 million meals in the quarter. This is down 6% due to normalization from the unprecedented growth in the past three years from the pandemic.

CEO Insights

HelloFresh CEO Dominik Richter underscored that over 50% of the dinners in its target markets are cooked and consumed at home. This is a sticky figure that always applies through any economic cycle. The company serves over a billion meals annually, constituting 1% of all dinners in its primary customer group. The company has grown its direct-to-consumer (DTC) ready-to-eat (RTE) segment to become the largest player in the United States with its Factor 75 brand.  Factor 75 delivers RTE meals that are already chef-prepared and need to be heated up instead of meal kits that have to be prepared and cooked at home. It plans to use that template to grow in Europe and internationally.

Second-Half Growth Story

Richter concluded, "Q2 should have been the low point for growth with reacceleration of customers and number of meals expected for H2. Outside of easier comps, we see the scaling potential of Factor US into H2 as very significant. And we see a number of product enhancements hitting in the second half of the year, such as the expansion from 35 meals to 45 meals on our US menu, as well as the rollout of HelloFresh markets into more and more geographies."

Analyst Actions

On August 15, 2023, Deutsche Bank reiterated a Buy rating on HelloFresh. They said the company would have a stronger second half as they expand their production capacity of its ready-to-eat brand Factor along with new product rollouts. Analyst Nzia Naizer expects 4% growth in the third quarter and 12% in the fourth quarter of 2023. Naizer mentioned that the growth is maturing in the US with its meal kits, but the read-to-eat vertical with Factor. Growth and European expansion potential are still in its early stages in the US.

Weekly Cup Preceding Handle

The weekly candlestick chart on HLFFF illustrates the completed cup pattern that may precede the handle if a market structure low (MSL) trigger can form on the next higher low candlestick. The prior MSL trigger was $26.66. The cup lip line commenced after peaking near $35.82 in May 2022. HLFFF shares fell to a low of $16.85, forming a rounding bottom as it rallied back to retest the cup lip line of $35.82 in September 2023. Shares have since fallen to a low of $25.73 to commence the handle formation if it can bounce. The weekly relative strength index (RSI) oscillator has fallen from the 70-band to test the 50-band down. Pullback support levels are $23.66 weekly MSL trigger, $22.35, $20.33 and $18.90.