The meal-kit retailer slashed marketing spending and revenue topped estimates for Q2, but concerns about competition with Amazon remain.

(Bloomberg)—In its first earnings report as a public company, Blue Apron Holdings Inc. gave investors what they wanted: a significant decrease in spending on marketing. That move came at a price, however. While revenue beat estimates, the meal-kit delivery company lost customers, sending shares tumbling 19%.

Blue Apron, No. 198 in the Internet Retailer 2017 Top 500, sells boxes packed with fresh ingredients and recipe cards to make dinner at home. It had been spending heavily on marketing to educate consumers on the concept and distinguish itself from the dozens of other offerings like Hello Fresh. But analysts had voiced concern about how much Blue Apron was spending to cover the airwaves and New York subways with advertising and whether its business model was sustainable.

In the second quarter, Blue Apron said its marketing spending declined by 43% from the first quarter. That resulted in a net decrease in the total number of customers and orders. Blue Apron had 943,000 customers at the end of June, about a 9% decline from March.

The decline shows that customers are dropping the service and Blue Apron isn’t able to replace them and grow without spending heavily. Marketing costs will remain a concern as Blue Apron faces off against better-capitalized companies like Amazon.com Inc. (No. 1). The shares fell to $5.03, their lowest since the initial public offering in June.

Sales for the period ending June 30 were $238.1 million, compared with the average analyst estimate of $235.8 million, according to data compiled by Bloomberg. The company posted a loss of $31.6 million after a profit of $5.5 million in the same quarter a year earlier it said in a statement Thursday.

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For Q2 ended June 30, Blue Apron also reported the following year-over-year numbers:

  • Orders increased 18.5% to 4.03 million from 3.40 million in Q2 2016.
  • Customers increased 23.1% to 943,000 from 766,000.
  • Average order value decreased 1.0% to $58.81 from $59.40.
  • Average revenue per customer decreased 4.9% to $251 from $264.

Rocky start

Blue Apron has faced a rocky start since its initial public offering in June. The stock has tumbled almost 50% since then, largely due to the shadow cast by Amazon, which is buying Whole Foods Market Inc., delivers fresh food and could also enter the meal-kit market.

Blue Apron has been working to offer a wider variety of options in an effort to keep current customers interested and entice new ones. It’s also been expanding to other meal and cooking-related products including a wine pairing subscription and branded cookware. To run the core business, Blue Apron incurs high costs at its fulfillment centers where the boxes are assembled.

Last week, Blue Apron announced that it would close its Jersey City, N.J., facility as it ramps up a new fulfillment center in the state, in Linden. That one is double the size and will feature more automation technology, an important step for Blue Apron to be able to offer more box options. As part of the move, employees at the Jersey City facility who decide not to shift over will be laid off in October.

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Less than a month after the IPO, Matt Wadiak, one of the company’s co-founders, stepped down from the chief operating officer role. The management shakeup accompanied changes to the reporting structure for two other executives.