Blue Apron aims Amazon-like valuation in US IPO

Bloomberg

Blue Apron Holdings Inc. is used to pitching its pre-portioned meal kits as an alternative to shopping for groceries, eating out or ordering in. The past week and a half, the company has faced a new challenge: Convincing investors of its value during a roadshow for its initial public offering.
Blue Apron aims to raise as much as $510 million, marketing 30 million shares of Class A stock for $15 to $17 apiece. The shares are expected to price on Wednesday after the market closes, according to data compiled by Bloomberg.
It’s a tough time for a food-delivery company to go public. The US grocery industry is reeling from Amazon.com Inc.’s deal to buy health-food store Whole Foods Market Inc., which wiped billions of dollars from retailer’s stocks when it was announced on June 16. E-commerce giant Amazon has a track record of conquering markets when it wants to, and the $13.6 billion deal for Whole Foods is no small bet.
New York-based Blue Apron tweaked its IPO pitch after Amazon’s deal was announced, according to a person familiar with the matter. Management planned to stress that its business model, with tailored recipes and prepared ingredients adding value, is different from basic grocery delivery.
If Blue Apron’s IPO prices at the top of the marketed range, the company will have a valuation of about $3.2 billion. That would be a first step to convincing investors that it should sit at the e-commerce table with Amazon and Alibaba Group Holding Ltd. rather than with lower-valued grocery chains.
The bottom line: Blue Apron doesn’t want to be thought of as a grocer, but as a lifestyle choice. Subscribing to its $59.94 weekly box, which includes ingredients for three meals for two people, helps the company “make incredible home cooking accessible to everyone” and “build a better food system,” according to the IPO filing.
What investors see is a small but swiftly growing business whose target valuation makes it look more like an established e-commerce company. Sprouts Farmers Market Inc., the Phoenix-based grocer with a market valuation of about $3 billion, made $4 billion in revenue in fiscal 2016, compared to Blue Apron’s $795 million in 2016 net revenue, which excludes refunds and reimbursements. Yet the meal-kit delivery company will be valued more than 5 times more richly based on revenue, according to data compiled by Bloomberg.
Part of Blue Apron’s argument for that valuation is its growth. As of March, its net revenue was up 133 percent from the same period a year earlier, while while its customer base almost doubled to 1 million during the same period, according to its IPO filing.
Yet one expense in particular — marketing — has more than kept pace. Blue Apron doled out $144 million to promote itself in 2016, up 181 percent from the year before. The IPO was put on hold last year as it worked on reducing the cost of acquiring customers, a person familiar with the matter said in December.
Investors are likely to question whether Blue Apron can continue to add customers, while keeping current subscribers. The company says it reaches just 0.7 percent of its addressable market of US households. At the same time, those customers are ordering fewer, cheaper meal kits: average revenue slipped to $236 from $265 in the first quarter, compared to a year earlier.
As Blue Apron asks public investors to bet on its stock amid an increasingly competitive food-delivery market, it will have to address that decline in revenue per user. With cost-conscious Amazon snapping at its heels to nab more of grocery shoppers’ paychecks, it’ll need to move fast.