Blue Apron’s Tepid IPO…Wall Street Adopts A Wait And See Attitude
Meal prep pioneer Blue Apron went public under the symbol APRN. The stock was floated at the low end of the expected range and the stock closed at the opening price after a brief rally earlier in the day.
The wind instantly came out of the sails, as higher expectations for the IPO were quickly muted for two reasons:
- Sales growth has been incredibly impressive, with revenue having grown tenfold in two years, from $77.8 million in 2014 to $795 million in 2016. However, the company has yet to show a full year profit and on a full fiscal year basis for 2016, the company spent $144 million in marketing, or around 18%, and marketing costs seem to be on the rise in the latest quarter, climbing to 24.8% of net revenue, perhaps in an attempt to accelerate revenue growth ahead of the IPO.
- Amazon’s $13.7 billion acquisition of Whole Foods has shaken up the entire retail industry. This mega acquisition may ultimately have no direct impact on meal prep companies like Blue Apron but it is making everyone rethink what the future of food retail will look like. Amazon and Whole Foods have both dabbled in this space (Amazon with Martha Stewart and Marley Spoon) and they could rapidly become significant competitors.
I think Wall Street and investors have gotten this one right so far. It seems wise to adopt a wait and see attitude toward Blue Apron for many reasons:
- There are a lot of very viable competitors like Hello Fresh, Home Chef and Plated. It is unclear whether Blue Apron has achieved clear separation from the pack despite being the first to become public.
- The company must address its high marketing costs and churn rates. The marketing costs are not sustainable and churn remains problematic, which calls into question the loyalty of their customers and perhaps, the viability of the weekly shipping model. Many of the key metrics to judge the company seem to be in a mild decline with average order size, average number of orders per customer and average customer value all down in the latest quarter.
- I believe that these models must adapt, from creating a more efficient way for customer attraction towards having a more convenient way to access their meals. Clearly, developing a retail or brick and mortar partnership seems to make a lot of sense as well as potentially partnering with other grocery e-commerce providers.
Now, Blue Apron must prove the model under the rather harsh glare of becoming a (still) highly valued public company. I will be watching with interest!