A Hard Look at Blue Apron’s IPO

Blue Apron is poised to hit the stock market. The company recently filed to go public on the NYSE under the trading symbol of APRN. A price range for the stock has not been set. The company plans to raise $100 million as a placeholder amount. Barclays, Goldman Sachs & Co., Citigroup and Morgan Stanley are the primary underwriters on the public offering.

There is certainly plenty of buzz over this meal-kit delivery company. The question is whether the stock is a looming powerhouse or a potential dud. Take a close look at Blue Apron’s business model, offerings and financial performance and you will stay far away from this IPO. Here’s why.

Blue Apron is not a Threat to the Grocery Industry

The most bullish Blue Apron supporters claim this meal-kit delivery company will pull a significant share of the market away from traditional grocers. The United States grocery industry brings in a whopping $800 billion. Yet Blue Apron is not a serious threat to steal a meaningful percentage of this economic pie. Sure, the company has grown quite rapidly. However, those who take a close look at the company’s revenue growth find it is rapidly decelerating.

Blue Apron’s yearly revenue is $795 million. This is a 133 percent rise from the year prior. It is possible the company will break the $1 billion revenue benchmark in 2017, yet top-line growth in the first-quarter was a disappointing 42 percent. It is a sign the meal-kit market is not as robust as many believe. It is also a sign that the competition is pulling market share away from Blue Apron.

If the business has successive quarters with disappointing growth rates, the stock might not perform at the expected level. After all, expectations are sky-high for Blue Apron. It is considered a “growth vehicle” that many assume will continue to expand quite rapidly across posterity.

Where are the Profits?

Blue Apron is operating at a loss. Though many businesses have launched successful IPOs while being in the red, the lack of a profit is cause for concern in this instance. Blue Apron’s cost growth is spiking while revenue growth is decelerating. This is not a recipe for success.

It is interesting to note that Blue Apron enjoyed a short period of profitability in the first quarter of 2016, when the company earned a net income of $3 million. However, the company lost an incredible $52.2 million in the same period the following year.

If the company’s net loss does not shrink across its first couple of quarters as a publicly traded company, plenty of investors will dump the stock. The mere fact that Blue Apron lost a whopping $54.9 million in 2016 is concerning. This figure equates to nearly seven percent of the company’s revenue. Net losses soared to 21.3 percent of revenue in the first quarter of 2017.

It appears as though Blue Apron has quite the rocky road ahead, meaning investors might not be willing to go along for the ride.

Competition is Ramping Up

All sorts of meal-kit delivery services are popping up across the nation – but many are shutting their doors as well. The industry appeared to be poised for rapid expansion that would justify the presence of dozens of power players. However, meal-kit services like Sprig, SpoonRocket and Maple raised millions and subsequently folded.

Blue Apron’s top competitor, HelloFresh, endured a down round in its most recent fundraising effort. It is clear that this is an extremely competitive line of business. It will become that much more competitive as supermarket monoliths like Whole Foods, Kroger and Publix enter the space.

What Sets Blue Apron Apart From the Pack?

There are legitimate questions about Blue Apron’s competitive advantage. Sure, it is a large company. However, 92 percent of Blue Apron customers have previously ordered from the company. This means a very small portion of the company’s revenue is from first-time buyers. Blue Apron is a young business that should be making inroads with new customers and markets without encumbrance.

Blue Apron likes to make a big deal about its wine-pairing service and culinary tools sold on its e-commerce site. But these offerings aren’t unique in any way. There are plenty of businesses that sell cookware and wine.

The bottom line is that Blue Apron doesn’t really do anything special. This company does not have a competitive advantage of any sort. It is certainly possible that Blue Apron will lose a large chunk of its market share to competitors as time progresses.


Ethan Warrick
Wealth Authority