Marley Spoon (ASX: MMM) released a market update on Friday morning boasting of increased revenue and sales from its home-delivered meal kits in Q1 2020. The one-page announcement draws attention to the company’s €42m quarterly revenue as a 40% increase in comparison with the same period last year.
Though Marley Spoon is seeking to separate the result from Covid-19, emphasising a strong start to the year that pre-dated the beginning of the pandemic, Friday’s announcement left the market waiting for key details. When exactly did the jump in revenue occur? Has the company been preparing for Covid-19, or will further investment be required to take advantage of the business opportunity it presents? And if so, how will the company be financing the scaling-up of its operations?
Interested parties should keep in mind that just three weeks ago, Marley Spoon reported in its 2019 full-year results an annual loss of €34.8m and a net debt position of €31.6m. Thus even if sustained, the reported increase in revenue is not guaranteed to see Marley Spoon turn a profit or even generate free cash flow. Any further cash burn would add to its considerable debt at a time of obvious macro-level uncertainty surrounding liquidity
The sun was shining on Marley Spoon when it leapt to $0.42 by close of trade this Thursday, up from $0.22 on Tuesday morning, as the reality of a months-long period of social distancing across Europe, USA and Australia began to sink in for the public. Just like the company’s namesake, the business case for home-delivered food during a pandemic is catchy, broadly appealing and easily understood. It’s arguably the same sort of surface-level appeal that took the company’s shares to $1.35 shortly after IPO, a level from which it has seen a steady exodus ever since.
Following A Rich Life’s framework for sorting stock opportunities during a pandemic, Marley Spoon could be heading for fool’s gold status: though a very obvious short-term beneficiary of the crisis, its weak fundamentals do not fill us with confidence beyond the current share price spike.
Christian Tym does not own shares in Marley Spoon. The finance editor, Claude Walker, recently sold shares in Marley Spoon because he has zero conviction in the long-term thesis.