WWN #24 – Blue Apron: A Disappointing Debut on the Stock Exchange

Blue Apron is the largest food delivery business in the United States. Its focus is on delivering refrigerated, portioned ingredients for particular recipes which is similar to its rivals HelloFresh and Plated. It was founded five years ago and has never made a profit although its revenue increased by more than twofold to $795.4 million last year.

The company intends to list on the New York Stock Exchange (NYSE) under the symbol “APRN” at a price of $10 a share, down from the previous forecasted share price of $15 to $17. The revised price was determined amid growing concerns of the impact of Amazon’s pending acquisition of Whole Food Markets in a $13.7 billion deal announced earlier this month. The new pricing range implies that the business is worth up to $2.08 billion compared with $3.2 billion earlier. According to Dealogic, this is highly unusual as only 4% of internet IPOs have revised their range downward since 2010.

With an offering of 30 million shares, the company is looking to raise about $300 million in its initial public offering (IPO). The proceeds from the listing will go into investing in automation and supply chain technology says the CEO Matthew Salzberg.

What Now?

Upon its listing on Thursday, the IPO yielded quick returns as it reached $11 before retracing back to the IPO price of $10. It’s a disappointing if not depressing start for many Blue Apron investors who were expecting the standard 20 percent “pop” on the first day of trading to kick off the company’s public debut in good terms. In contrast, another highly anticipated IPO Snap (the parent company of Snapchat) rose 44 percent on its first day of trading earlier this year.

The lacklustre trading in Blue Apron reflects an understanding that this is a business where quite a few challenges would need to be overcome before substantial growth and profits can be realised. It does not necessarily mean that the business model is poor, said Neil Saunders from GlobalData.

What’s next?

Whilst Blue Apron has failed to meet investors’ expectations of a quick return, the company is well positioned in a market that could potentially boom. Darren Seifer at the NPD Group stated that “it makes perfect sense that as online grocery shopping grows, it will drive the adoption of meal kits”.

They are not alone in the meal delivery space though and as the market grows, there may be new entrants and competition may intensify between existing businesses. Another big challenge for Blue Apron is finding loyal customers. According to the purchase-analytics firm Cardlytics, more than half of meal-kit subscribers cancel their subscriptions within the first six months. As a result, Blue Apron has been spending more and more on marketing to attract enough new customers to offset cancellations. It was revealed that $144 million was spent on marketing in 2016 which is roughly 18 percent of total revenue.

Given all of these challenges and uncertainty, it is difficult to heed Matt Salzburg’s advice to not worry about whether the stock price is “up, down, left or right” and remain focused on the long –term picture.

References:
http://www.cnbc.com/2017/06/28/blue-apron-lowers-its-ipo-range.html
Blue Apron whiffs on first day of trading
http://www.latimes.com/business/la-fi-blue-apron-ipo-20170629-story.html
https://www.reuters.com/article/us-blueapron-ipo-idUSKBN19K22R