Blue Apron under investigation after disastrous IPO
- After a spectacularly bad debut on the stock market for Blue Apron, law firm Harwood Feffer LLP is investigating claims of whether the meal kit company's board breached its fiduciary duty to investors, according to a press release.
- The meal kit company started trading on the New York Stock Exchange on June 29 with a price of $10 a share. In premarket trading Wednesday, prices had fallen to $6.40 a share.
- According to Renaissance Capital, Blue Apron's IPO has posted the worst returns of the year for a deal of $100 million or more, Marketwatch reported.
Considering its high cost of acquiring and maintaining customers — coupled with the fact that the company acknowledged in its Security and Exchanges Committee prospectus that it might never post a profit — Blue Apron started out as a risk to investors. According to its filing, company revenue grew from $78 million in 2014 to $795 million in 2016, but losses totaled $55 million last year, up 56% from $31 million two years earlier. Even when it first announced its IPO plans in June, some analysts were eyeing the meal kit company warily.
Since going public, Blue Apron's stock has mostly been in decline. The largest drop came on the heels of reporting that Amazon — which recently entered into a $13.7 billion agreement to take over Whole Foods Market — had filed trademark applications for a line of meal kits.
According to reports, Blue Apron has raised just two-thirds of the anticipated $510 million targeted in the IPO, and the funds are so far only about enough to sustain it for another year. Considering the company's current position and debt, some analysts have said the company may need a second offering just to stay afloat.
Since the company was initially valued at $3.2 billion and expected an IPO price of $15 to $17, Blue Apron's poor performance raises the inevitable question — what happened? Some point to timing. Between the time the IPO was announced and its actual date, the Amazon-Whole Foods merger was announced. Many believe that this new partnership will help the e-commerce giant supercharge its grocery delivery selection and service, including becoming a direct competitor to Blue Apron. In fact, some Amazon Prime members have already had the opportunity to test potential Amazon meal kits.
Underlying the timing issues — and completely independent of any blame cast on the grocery mega-merger — are problems with the company's business and profitability plan on the whole. A fifth of Blue Apron's cash goes toward marketing to attract and retain customers. In numbers, this spending has gone from $14 million in 2014 to $144 million last year — an increase of 930% in just two years. And while customers provide the company's revenues, a model so heavily dependent on advertising is only sustainable for so long. Losses are mounting instead of profits growing.
Despite excitement in the meal kit market, these factors have always been lurking in the corner of Blue Apron's IPO, and always threatened to tank its prices. The mega-merger's impact on the industry and markets on the whole could just be revealing these weaknesses earlier. While this is not good for early Blue Apron investors, it might be better news for the markets and investors as a whole. Optimism and buzz for new ideas buoyed the tech bubble of 2000, during which investors lost millions after realizing the profits they had hoped for were not forthcoming.
This investigation's findings may add to Blue Apron's current financial woes. But it also may serve as a warning to other meal kit companies thinking about going public — and to investors who buy trendy stocks without much scrutiny to support what they see as the next big thing.
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