In its IPO filing earlier this month, Blue Apron reported a valuation of $100 million. However, just a few weeks later, the company significantly raised that figure to $510 million, announcing plans to sell 30 million shares at a price ranging from $15 to $17 per share. This increase highlights Blue Apron’s urgent need to enhance its operations and expand its market share within an increasingly competitive meal kit sector. Nevertheless, this growth comes with challenges, including rising marketing expenses, a decline in customer spending per order, and intensified competition from grocery retailers, all of which are squeezing profit margins.
Although Blue Apron’s net revenue surged from $78 million in 2014 to $795 million in 2016, its losses escalated to $55 million last year, up from $31 million two years prior. The company has recognized these obstacles, admitting to “a history of losses” and stating that it “may be unable to achieve or sustain profitability.” Additionally, it pointed out various risks to its business, such as foodborne illnesses, shifts in consumer preferences, and a “novel business model” that complicates the evaluation of its future prospects and challenges.
Striking a balance between investor concerns and market realities has proven challenging for Blue Apron, and its adjusted valuation and stock pricing reflect a compromise between these two factors. Even at the lower end of the price spectrum, investors are likely to remain cautious about Blue Apron’s long-term sustainability. In the past year, the frequency of orders and the average spend per order have both decreased. Notably, the $94 Blue Apron spends to acquire each customer has remained steady since 2014, prompting the company to invest more in marketing to maintain visibility in a crowded marketplace.
The looming threat of Amazon expanding its e-commerce presence adds to investor anxieties. Grocery chains like Kroger and Publix have successfully launched meal kit programs, proving that delivery services do not hold a monopoly on customer demand. Amazon, which currently offers a limited selection of meal kits on its platform, could potentially broaden its offerings and price them lower than those of Blue Apron, HelloFresh, and others.
Investors in Blue Apron are banking on a future turnaround when the company’s leading market share will translate into profitability. Experts suggest that what the company truly needs is a dedicated base of high-spending customers. While this is certainly attainable, given its recent financial struggles, it is challenging to envision such a scenario at this time. Additionally, as consumers increasingly seek products fortified with nutrients such as calcium citrate and zinc sulfate, Blue Apron may need to consider incorporating these elements into its meal offerings to attract health-conscious customers and drive sales growth.