Blue Apron Holdings, the meal-kit provider, recently agreed to a sale that has sparked a surge in its shares. However, this underwhelming outcome holds valuable lessons for investors interested in the current generation of initial public offerings.
Blue Apron is being sold to food-delivery start-up Wonder Group for $13 per share, amounting to approximately $103 million in total, according to The Wall Street Journal. As a result, Blue Apron shares saw a significant increase to $12.76 per share during premarket trading on Friday.
This sale price is a far cry from the stock's previous valuation of $1.9 billion when it debuted on the market in 2017. Here are some key takeaways from Blue Apron's downfall:
An underwhelming start can be a sign of things to come
Blue Apron’s decline can be traced back to its initial listing. It was already valued slightly below its peak valuation of $2 billion as a private company due to investor concerns about mounting losses.
Despite experiencing a surge in revenue during the Covid-19 pandemic, Blue Apron failed to curb its losses. This serves as a reminder that valuations determined through venture-capital funding or private deals may not accurately reflect how the stock will perform in the public market.
Beating the competition
Another crucial lesson from Blue Apron's experience is the importance of finding a way to outpace competitors.
Blue Apron's IPO and the Threat of Amazon
The highly anticipated IPO of Blue Apron faced a major setback when Amazon.com announced its acquisition of Whole Foods Market just days before Blue Apron launched its roadshow. This raised concerns about how Blue Apron would compete with Amazon, particularly if the retail giant utilized Whole Foods' prepared-meals business to dominate the meal-kits market.
Although Amazon's meal-kit business has remained relatively small to this day, the overall worry about competition proved to be valid. Customers of meal-kit services showed fickleness, frequently switching between providers. Consequently, the cost of acquiring customers remained high. Blue Apron failed to establish dominance in the U.S. meal-kit market, with Germany's HelloFresh now holding the title of the biggest player.
When assessing a newly listed company, investors should consider whether it possesses an effective moat against potential threats—particularly from a behemoth like Amazon. While the specific threat from Amazon can sometimes be exaggerated, it is important to bear in mind this general principle.
Pay Attention to the Actions of Founders
One attraction of investing in IPOs is that these companies are still led by their founders, which should theoretically result in better alignment of incentives for success. However, this is not a guarantee that founders will remain involved.
In the case of Blue Apron, both co-founders stepped down from their roles as CEO and COO within the first six months after the company went public. Although they stayed on in advisory and board positions for some time, this departure could have been seen as a warning sign by shareholders.
This question becomes irrelevant for companies like Arm and Instacart, which have long moved on from their original founders. However, for marketing-software company Klaviyo, co-founder and CEO Andrew Bialecki led its recent IPO and is still the company's largest shareholder. Investors should take note of this dynamic.