After Amazon move, Blue Apron slashes its IPO value

Bloomberg

Yet another food company’s stock has been sunk in the wake of Amazon.com Inc.’s agreement to buy Whole Foods Market Inc. — and this one isn’t even publicly traded yet.

Blue Apron Holdings Inc. slashed its initial public offering price by a third Wednesday, just hours before the stock is expected to price. The company is now selling 30 million Class A shares for $10 to $11 apiece, down from $15 to $17, according to a regulatory filing Wednesday.

It’s a tough time for a food-delivery company to go public. The U.S. grocery industry is reeling from Amazon’s takeout of Whole Foods, which wiped billions of dollars from retailers’ stocks when it was announced June 16. E-commerce giant Amazon has a track record of conquering markets when it wants to, and the $13.7 billion deal for Whole Foods is no small bet.

The cut in Blue Apron’s price range slashes its target market valuation to $2.1 billion from $3.2 billion, based on the number of shares to be outstanding after the offering. The amount the company is raising also shrinks to as much as $310 million from an earlier target of $510 million.

New York-based Blue Apron tweaked its IPO pitch after Amazon’s deal was announced, according to a person familiar with the matter. Management planned to stress that its business model, with tailored recipes and prepared ingredients adding value, is different from basic grocery delivery.

At its previous price range, Blue Apron would have had a valuation of 3.8 times net revenue, in line with the 3.4-times average of the biggest e-commerce companies like Amazon and Alibaba Group Holding, rather than with lower-valued grocery chains. The truncated price brings Blue Apron’s value below the e-commerce average to about 2.6 times net revenue.

The bottom line: Blue Apron doesn’t want to be thought of as a grocer, but as a lifestyle choice. Subscribing to its $59.94 weekly box, which includes ingredients for three meals for two people, helps the company “make incredible home cooking accessible to everyone” and “build a better food system,” according to the IPO filing.

What investors see is a small but swiftly growing business whose target valuation makes it look more like an established e-commerce company. Sprouts Farmers Market Inc., the Phoenix-based grocer with a market valuation of about $3 billion, made $4 billion in revenue in fiscal 2016, compared with Blue Apron’s $795 million in 2016 net revenue, which excludes refunds and reimbursements. Yet the meal-kit delivery company will be valued almost seven times more richly based on revenue, according to data compiled by Bloomberg.

Part of Blue Apron’s argument for that valuation is its growth. As of March, net revenue was up 133 percent from the same period a year earlier, while its customer base almost doubled to 1 million during the same period, according to the IPO filing.

Yet one expense in particular — marketing — has more than kept pace. Blue Apron doled out $144 million to promote itself in 2016, up 181 percent from the previous year. The IPO was put on hold last year as it worked on reducing the cost of acquiring customers, a person familiar with the matter said in December.

Blue Apron’s net loss widened to $54.9 million in 2016 from $47 million a year earlier. The company may never make a profit, it warns in its IPO filing.

Investors are likely to question whether Blue Apron can continue to add customers while keeping current subscribers. The company says it reaches just 0.7 percent of its addressable market of U.S. households. At the same time, those customers are ordering fewer, cheaper meal kits: Average revenue per user slipped to $236 in the first quarter from $265 a year earlier.

As it asks public investors to bet on its stock amid an increasingly competitive food-delivery market, Blue Apron will have to address the decline in revenue per user. With cost-conscious Amazon snapping at its heels to nab more of grocery shoppers’ paychecks, it will need to move quickly.