Why is the stock down 90%?
Hello Fresh. Hungry for More! Equity Research! Part 1/3
Hello Readers!
Today on the menu, we have Hello Fresh!
Hello Fresh is a €1.5B subscriptions-based, direct-to-consumer food delivery business attempting a turnaround. In this 3-part Equity Research Deep Dive, we will look at what happened to Hello Fresh and how the company is moving forward. Furthermore, an analysis of its business model, marketing strategies, and opportunities and risks will be presented! And of course, we will conclude the report with a financial analysis and valuation model.
Today we are talking about The Story of Hello Fresh, its products, and pricing strategy.
1. What Happened?
2. The Story of Hello Fresh
3. Business Model
4. Parts 2 and 3
1. What Happened?
As pandemic-induced shutdowns locked people in their homes, cooking and eating became one of the ways people attempted to cope with the stress of the pandemic. Hello Fresh became one of the Covid darlings that saw a 107% and 60% growth in its sales during 2020 and 2021, respectively.
Consequently, the explosion of Hello Fresh’s meal-kit business, lead the stock to stratospheric heights. At its peak in November of 2021 $HFG market cap was €16.4B, an increase of over 400% from the end of 2019.
This is where Hello Fresh’s business took another turn. First, sales growth slowed down to 27% in 2022, then it collapsed to 0% in 2023. Despite flat sales, expenses increased, causing Net Income to fall 48% and 85% in 2022 and 2023 respectively. Even worse, profits turned into losses as the company lost a cumulative €105M in Q3 2023 and Q1 2024.
This led $HFG to collapse 90% from its all-time high. However, Hello Fresh has taken steps to adapt its business to the new market realities. Their sales have returned to growth, although somewhat modest 2%-3%. Furthermore, it posted a €9.1M Net Profit in Q2 2024.
I see signs that lead me to believe Mr. Market overreacted and Hello Fresh is in a good position to successfully execute a turnaround!
Let’s dig in!
2. The Story of Hello Fresh
All animals must eat, and so do humans. But what and how humans eat has changed significantly. No longer are humans eating what they can, but what they want. Eating has changed from a necessity to a source of enjoyment and entertainment. As this change occurred, more and more businesses were founded to cater to these ever-changing customer preferences.
Convenience has beco