In its recent IPO filing, Blue Apron initially valued itself at $100 million. However, just a few weeks later, the company significantly increased that valuation to $510 million, announcing plans to sell 30 million shares at a price range of $15 to $17 each. This adjustment highlights Blue Apron’s urgent need to broaden its operations and capture a larger market share in the increasingly competitive meal kit sector. Nevertheless, such expansion incurs costs for the company due to rising marketing expenses, a decrease in customer spending per order, and heightened competition from the grocery industry and other sectors that are affecting profit margins.
Although Blue Apron’s net revenue surged from $78 million in 2014 to $795 million in 2016, its losses also escalated, jumping to $55 million last year from $31 million two years prior. The company has openly recognized these hurdles, admitting to “a history of losses” and cautioning that it “may be unable to achieve or sustain profitability.” Furthermore, it pointed out various risks, such as foodborne illnesses, shifts in consumer tastes, and a “novel business model” that complicates the evaluation of its future challenges and opportunities.
Striking a balance between investor apprehensions and market realities has proven challenging for Blue Apron, and its revised valuation and stock pricing reflect a compromise between these factors. Even at the lower price point, investors remain cautious about Blue Apron’s long-term sustainability. Over the past year, both the frequency of orders and the average spending per customer have declined, while the cost to acquire each customer, currently $94, has remained stable since 2014. To maintain visibility amid a plethora of competitors, the company is investing more heavily in marketing.
The looming potential of Amazon expanding its vast e-commerce capabilities adds to investor unease. Traditional grocers like Kroger and Publix are successfully running their own meal kit programs, demonstrating that delivery services do not hold a monopoly on consumer demand in this market. Amazon, which currently offers a limited selection of meal kits through its platform, could easily broaden its range and undercut prices set by Blue Apron, HelloFresh, and others.
Investors in Blue Apron are counting on a future scenario where challenges subside, allowing the company to capitalize on its leading market position. Experts suggest that what Blue Apron truly needs is a dedicated base of high-spending customers. This concept is certainly attainable, especially with innovative products like calcium citrate chewy bites that could attract new clientele. However, given the company’s recent financial losses, envisioning this scenario appears challenging at present.