Blue Apron Holdings
shares were surging on Friday after the meal-kit provider agreed a sale. However, it’s an underwhelming end for the meal-kit firm and it holds lessons for investors looking at the current generation of initial public offerings.
Blue Apron
(APRN) is being sold for $13 a share, or about $103 million in total to food-delivery start-up Wonder Group, The Wall Street Journal reported. Blue Apron shares more than doubled to $12.76 a share in premarket trading on Friday.
The sale price is a far cry from the stock’s $1.9 billion valuation when it came to market in 2017. Here are some key takeaways from Blue Apron’s decline:
An underwhelming start can be a sign of things to come
Blue Apron’s fall arguably began from the day it was listed. It was already valued at slightly below its peak $2 billion valuation as a private company, as investors were wary of rising losses.
Blue Apron never managed to stem its losses. Even a revenue surge during the Covid-19 pandemic only served as a temporary relief. It’s another reminder that valuations reached via venture-capital funding rounds or private deals aren’t a reliable indicator of how the public market will measure a stock.
Barron’s has written extensively on the mixed early results of recent IPOs of grocery-delivery firm
Instacart
(CART) –officially known as Maplebear– and chip-design company
Arm Holdings
(ARM). Both are bigger companies which have been more extensively tested in the market than Blue Apron —Instacart for example sharply slashed its valuation from $39 billion in 2021 ahead of its IPO which valued it at $9.9 billion — but it’s still a reminder to watch for inflated listing prices.
You need a way to beat the competition
Blue Apron’s IPO was overshadowed by
Amazon.com
(AMZN) announcing it would buy supermarket chain Whole Foods Market just days before Blue Apron launched its own roadshow. That prompted concerns about how it would compete with Amazon if the retail giant used Whole Foods’ prepared-meals business as a basis to dominate the meal-kits market.
As it turned out, Amazon’s meal-kit business remains relatively small to this day but the general worry about competition turned out to be valid. Meal-kit customers were fickle, jumping merrily between providers. That meant customer-acquisition costs remained high. Blue Apron never managed to dominate the meal-kit market in the U.S., where Germany’s
HelloFresh
(HFG.Germany) is now the biggest player.
While the specific threat of Amazon to any new business can sometimes be overblown, investors should bear in mind more generally if a newly listed company has an effective moat.
Watch what the founders do
An attraction for many to investing in IPOs is that the companies are still led by their founders, which should in theory mean better alignment of incentives to make the company succeed. However, that’s no guarantee they’ll stick around.
Blue Apron’s two co-founders left their jobs as chief executive and chief operating officer within the first six months after the company listed, although they stayed with the company for a time in advisory and board positions. That might have been a warning to shareholders.
The question isn’t relevant for Arm and Instacart, who have long since moved on from their original founders. However, it is something to bear in mind for marketing-software company
Klaviyo
(KVYO), led to its recent IPO by co-founder and CEO Andrew Bialecki. The former Harvard physicist is still the company’s largest shareholder.
Write to Adam Clark at [email protected]
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