Analysts may be scratching their heads over Grove Collaborative's (GROV) recent earnings report. Revenue is down, active customers are dwindling, and marketing spend has been slashed. A bleak picture? Not so fast. Hidden within the numbers is a metric that tells a very different story – a story of strategic transformation and a foundation for sustainable growth.

Forget the top line for a moment, and focus on the overlooked hero of this report: **DTC Net Revenue Per Order**. This seemingly mundane metric has quietly been climbing, reaching a record high of $66.27 in Q1 2024. This represents a 7.5% year-over-year increase, a stark contrast to the 25.2% decline in overall revenue.

What does this tell us? Grove Collaborative is not simply shrinking; it's undergoing a deliberate metamorphosis. By prioritizing customer experience and basket building, the company is cultivating higher-value orders, even as the total order count decreases.

Let's delve deeper into the significance of this trend. Grove's shift away from the traditional subscription model, marked by gated access and default subscriptions, has indeed impacted first-order conversion rates. This short-term pain, however, is a necessary step towards unlocking long-term gain.

The new customer experience, launched in February, encourages customers to build their own personalized baskets and subscribe to individual products. This allows Grove to cater to a broader market, reaching consumers who prefer a more flexible approach.

Think of it this way: Grove is trading volume for value. They're attracting customers who are willing to spend more per order, leading to a more robust and sustainable revenue stream in the long run.

This strategy is further bolstered by Grove's expansion into the health and wellness category. Customers are placing their trust in Grove's commitment to sustainability and ingredient quality, resulting in a significant increase in orders containing wellness products. This is a particularly lucrative segment, with customer lifetime value estimated to be three times higher for wellness shoppers compared to those who focus solely on cleaning products.

But here's the real kicker – Grove is achieving this shift while maintaining profitability. They've delivered positive adjusted EBITDA for three consecutive quarters, a testament to their disciplined approach to cost management.

The closure of their Missouri fulfillment center and the restructuring of their San Francisco headquarters lease will further enhance profitability, streamlining operations and aligning their footprint with the evolving business model.

While the market may be fixated on the headline revenue decline, savvy investors should be paying attention to the underlying narrative. Grove Collaborative is playing the long game, building a foundation for sustained growth driven by higher-value orders and a loyal customer base.

The Hypothesis: Can Grove Maintain Revenue Per Order Growth?

The success of Grove's strategy hinges on its ability to consistently increase DTC net revenue per order. Here's where things get interesting – we can develop a hypothesis based on the available data:

"**Hypothesis:** Grove Collaborative will achieve a minimum 5% year-over-year growth in DTC net revenue per order for the remaining quarters of 2024. **Justification:** The company's focus on the health and wellness category, coupled with its enhanced customer experience and subscribe-and-save program, creates a strong foundation for sustained revenue per order growth. **Potential Risks:** The competitive landscape for sustainable consumer products is intensifying. Grove will need to maintain its product innovation and marketing effectiveness to attract and retain high-value customers."

DTC Net Revenue Per Order Trend

The following chart illustrates the growth of Grove Collaborative's DTC net revenue per order, based on available data and projected growth.

Beyond the Numbers: Fun Facts about Grove Collaborative

Grove Collaborative was founded in 2012 by Stuart Landesberg, who was inspired to create a company that made it easier for people to live a more sustainable lifestyle.They are a certified B Corporation, meaning they meet high standards of social and environmental performance, accountability, and transparency.Grove Collaborative has a strong commitment to fighting plastic pollution. They have partnered with Plastic Bank to help collect and recycle ocean-bound plastic.

"**The Takeaway:** Don't be fooled by the surface-level metrics. Grove Collaborative is undergoing a strategic transformation that positions it for long-term success. The rise of DTC net revenue per order is a clear indicator of this shift, and investors should be watching this metric closely as the year progresses."