Since mid-March, Marley Spoon shares have skyrocketed over 400% to $1.15 (as at the time of writing). This is an incredible turnaround for a company that had been consistently losing value for most of 2019.
Marley Spoon’s weekly delivered meal boxes contain a set of recipes along with all the correctly pre-portioned ingredients required to cook them. This allows customers to prepare home cooked meals without the hassle of having to go to the supermarket, and with zero wasted ingredients.
Clearly, this is a great service during a social lockdown. At a time when people are being told to only leave their homes for essential activities – and even a trip to the supermarket can be complicated by the demands of social distancing – having fresh ingredients delivered directly to your door can help to reduce the stresses associated with the new post-coronavirus reality.
In the second half of March, at a time when a lot of ASX companies were releasing earnings downgrades, Marley Spoon announced an “unprecedented” surge in demand for its meal kits across all its international markets. The company said that it expected revenues for the March quarter to be over 42 million euros, which would represent year-on-year growth of more than 40%.
The company stressed that these were uncertain times, but so far, its supply chains had remained robust throughout the crisis. It also stated that is has the flexibility to change its recipes to account for shortages in certain ingredients.
Should you invest?
Services like Marley Spoon are almost tailormade to support households as they adapt to life in social lockdown. And while the company’s share price has surged recently, there is still the potential for it to continue to increase the longer the coronavirus crisis remains in the news. On Thursday alone, the Marley Spoon share price went up 21%, so it’s clear there is still plenty of investor interest in the company’s shares.
However, for shareholders with longer-term objectives, there is a key issue to consider. Once the coronavirus crisis is over, and a degree of normalcy returns to everyday life, will demand for Marley Spoon’s services decline again?
It’s such an important question, because it could spell the difference between short-term opportunism or a sound long-term investment strategy.
I happen to think that the increased interest in Marley Spoon brought about by the unique global circumstances we are currently living through will continue to deliver long-term results for the company.
I have two arguments to support that. The first is that these global lockdowns are forcing many people who would have otherwise never thought to try Marley Spoon to sample its services. That is a great thing for the company because it increases its market penetration – even if only temporarily.
This increased brand awareness should result in a long-lasting expansion of its customer base. Even if only a fraction of these new coronavirus customers retain Marley Spoon’s services once the lockdown restrictions are lifted, it would still represent a permanent and substantial increase in customer numbers.
Secondly, Marley Spoon operates a subscription-based service. Customers are free to pause or quit their subscription at any time, but this business model still increases stickiness in demand. Customers may come to rely on Marley Spoon’s regular weekly deliveries and it may simply be easier for them to keep up their subscription even once their lockdowns end.
Marley Spoon is still a small-cap company and a risky investment. So far, its supply chains have held strong and it has adapted to conditions, but these remain strange and uncertain times. If economies enter recessions – or worse yet, depressions – smaller companies with less robust balance sheets will necessarily be the first to collapse.
However, Marley Spoon is a much more exciting company now than it was 6 months ago, and for investors with the right risk appetite now could still be a good time to buy.
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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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