Blue Apron took a hit to its valuation on Wednesday, when the company announced a reduced price range for its initial public offering (IPO). Last week, the company began the process to go public on the New York Stock Exchange under the symbol “APRN.” The meal kit delivery company previously announced they were going public with a target price set between $15 – $17, putting the company’s valuation between $2.9 – $3.2 billion; now the company’s price range will be between $10 – $11, a public market capitalization of up to $2.08 billion. The slash in valuation comes at a time when investors are showing their willingness to exercise caution as the sustainability of e-commerce companies is questioned. At $11 a share, Blue Apron will be valued at nearly 2.5 times its net revenue over the last year.
In 2012, Blue Apron was founded by Matthew Salzberg, Ilia Papas, and Matt Wadiak. Their company’s objective has been to deliver ingredients and recipes that would allow customers to easily and conveniently prepare meals at home.
At its previous IPO price, Blue Apron would have started with a higher stock multiple than Amazon. At first glance it might seem exciting to know Blue Apron’s net revenue more than doubled in 2016, whereas Amazon did not. However, Amazon’s recent announcement of their intention to acquire Whole Foods, who have their own food delivery service, has some investors concerned about the Blue Apron’s ability to compete with a company with such a high level of established infrastructure. Amazon has also tested their own food delivery service through AmazonFresh, which deliver ingredients and recipes to their Prime subscribers
“With Amazon as their potential main competitor, this may make that long-term profit target more difficult than before the [Whole Foods] merger,” said Eric Kim, a managing partner at venture capital firm Goodwater Capital.
Blue Apron has faced questions in regard to their high marketing spending. Over the last year, the company has spent more than one-fifth of its net revenue in marketing, in an attempt to keep new customer growth and bring back customers who have stopped using the service after a period of time.
Delivery services, such as Blue Apron, have had to give big discounts or freebies to lure subscribers. Right now that upfront cost has yet to translate into a significant conversion of trial runs into real subscribers. Blue Apron has insisted their market opportunity is broad, as Americans seem to be shifting from shopping at grocery stores; choosing to rather order take out or eat at restaurants.
Right now Blue Apron is still the largest US meal kit delivery service. Blue Apron’s entry into the market comes in one of the busiest weeks for IPO’s so far this year. On Wednesday the company estimated the net proceeds from the sale of class A common stock in its IPO will be about $292.7 million. Blue Apron is expected to use their net proceeds from the IPO for working capital, capital expenditures, and for general corporate purposes.
Like many companies in the rising combination of tech and service industry, Blue Apron has yet to turn a profit. Last year Blue Apron posted a net loss of $54.9 million, throwing money into logistics and marketing. According to data from Cardlytics, the biggest threat to a meal kit delivery company is that more than half of meal-kit subscribers cancel their subscriptions within the first six months. This has concerned investors who worry that even if the amount of money currently being spent on marketing would be viable going forward, it would not solve this problem of bringing in loyal recurring subscriber base. Last year Blue Apron, spent roughly 18 percent of its $795.4 million revenue on marketing
The stock is scheduled to debut Thursday on the NYSE and will be the first US meal kit company to go public.
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