Blue Apron (NYSE: APRN), the nation's largest meal-kit delivery company, filed to go public last week.
The meal-kit industry has been closely watched by the business community as it has the potential to upend the $800 billion U.S. grocery industry. Blue Apron's rapid growth has attracted dozens of competitors, including start-ups and initiatives within established companies ranging from Amazon.com to the New York Times.
With all of the attention on the booming industry, it's no surprise that Blue Apron's IPO, the first from a meal-kit provider, is piquing investor interest. Let's take a look at a few of the nuggets inside the company's S-1 prospectus and beyond.
1. Revenue growth has been strong but is quickly decelerating
Blue Apron posted $795.4 million in revenue last year, up 133% from the year before. The company will almost certainly top $1 billion in revenue this year, but in the first quarter top-line growth slowed to 42%. While that is still a strong pace, it seems to indicate that the meal-kit market is maturing quickly, or that competition is making a dent into Blue Apron's growth rate. In 2015, when many Americans were first hearing about meal kits like Blue Apron, revenue jumped 338% to $340.8 million.
The company will have to demonstrate that it can maintain a strong growth rate in order for the stock to be successful, as investors have big expectations for the industry and will be treating Blue Apron as a growth vehicle. If the growth rate continues to slow significantly, the stock will be a dud.
2. It's still not profitable
Like many companies IPO-ing in fast-growing industries, Blue Apron is still operating at a loss. In 2016, it reported a net loss of $54.9 million, or 6.9% of its total revenue. In the first quarter of 2017 alone, its net loss ballooned to $52.2 million, or 21.3% of revenue, as the company spent aggressively on marketing and product, technology, and general and administrative (G&A) expenses. Management has said that the first quarter will mark the highest level of customer engagement throughout the year due to a seasonal promotional strategy, and I would expect marketing expense as a percentage of revenue to decline as the company matures. It also said the recent increase in product, technology, and G&A costs was due to increased hiring for corporate positions.
Still, it's a concerning sign to see cost growth accelerating while revenue growth slows. Investors would hope to see Blue Apron's net loss narrowing over its first few quarters as a public company rather than expanding.
3. Its competitive advantage is unclear
As the largest meal-kit service in the country, Blue Apron's size alone gives it some advantage over the competition. The company says 92% of its customers come from repeat business, indicating satisfaction with the program, but it will have to continue winning over new customers in order to grow and turn profitable.
Blue Apron says its greatest strength is its "highly collaborative and multidisciplinary team." While that may give it an advantage over new competitors, start-ups, like Uber, are notorious for upheaval in executive ranks as they grow. Talent itself does not represent a sustainable competitive advantage, but Blue Apron's combination of agricultural scientists, world-class chefs, and other staff might.
Among the other strengths the company lists are a "[p]owerful and emotional brand connection," "[s]uperior products at compelling values," "[c]onstant product innovation," "[a]ttractive unit economics," and a "[h]ard-to-replicate value chain." Still, based on the number of entrants, the industry remains wide open.
4. And competition is getting fierce
Plenty of meal-kit service and competing food-delivery companies have already been forced out of business. Among them are Sprig, which had raised $56 million; http://www.fooddive.com/news/sprig-is-the-latest-meal-delivery-service Maple, a New York-based food-delivery start-up, which had raised $22 million; and SpoonRocket.
HelloFresh, Blue Apron's biggest competitor, had a down round in its latest fundraising effort, as its valuation fell from 2.6 billion euros to 2 billion.
Those competitor misfortunes may all be a good sign for Blue Apron, which has continued to grow and build interest for an IPO, but the space has also attracted entrenched supermarket giants like Kroger, Whole Foods Market, and Publix, as well as packaged-food companies like Campbell Soup, Hershey, and Conagra Brands.
Blue Apron was valued at $2 billion in its last funding round and, according to earlier reports, was aiming for a $3 billion valuation in its IPO. Based on its expected revenue of more than $1 billion this year, that seems like a fair price tag.
Some company will emerge victorious from today's meal-kit arena, and Blue Apron is better positioned than any other right now. Even if its financial performance disappoints, the service could still be an appealing acquisition target for Amazon or another company.
Like most emerging markets, the meal-kit space is full of risk and opportunity. We'll learn more about Blue Apron's prospects when the company prices its shares before debuting. Based on all the attention meal kits have received, I'd expect a successful opening day from the industry leader, but it will have to deliver the numbers thereafter to keep up investor confidence.