Blue Apron (APRN 12.42%) has a new and formidable competitor, and that's been enough to turn an already broken IPO into one of this year's worst performers among market debutantes. Shares of the meal-kit provider for foodies took an 11% hit during the week. Blue Apron has now surrendered nearly 35% of its value since going public at $10 late last month.
News that Amazon.com (AMZN -0.99%) is invading Blue Apron's turf came quickly. The week began with reports that Amazon filied a trademark application earlier this month for a do-it-yourself meal-delivery platform. Before the week was done, we saw Amazon start testing it out for its Prime Fresh customers in Seattle, and CNBC ran a segment in which a reporter tested the two products side by side.
Red flags and blue aprons
Blue Apron is no stranger to competition. It's facing upstarts including HelloFresh and Plated, and there's been more than enough room for Blue Apron and its smaller peers to grow. Revenue more than doubled to $759.4 million for Blue Apron last year, and even a top-line growth deceleration to 42% in this year's first quarter is the kind of octane that most companies would love to have.
The problem is that Amazon is a ruthless disruptor. It's been able to upend established industries at a distance, and after its $13.7 billion deal for Whole Foods Market and its 400-plus locations across the country, it will also have the advantage of a local presence in all of the leading foodie-centric metropolitan markets.
Analysts were generally skittish about Blue Apron's prospects even before Amazon's bombshell. Chuck Cerankosky at Northcoast emerged as the most bearish of Wall Street pros earlier this month, initiating coverage of the stock with a "sell" rating and a brutal $2 price target. Cerankosky's dire prognosis was based on the inevitable considerable competition from conventional supermarkets that are also dabbling in meal kits. With Blue Apron's stiff shipping and labor costs -- and at the mercy of promotional discounts to attract new customers -- Cerankosky doesn't see a near-term end to the red ink.
A $2 price target for a stock at $6.55 may seem drastic, but this was a stock that underwriters were hoping to price at as much as $17 last month before settling for $10. In short, it's already lost nearly a third of what the shares were presumably worth a month ago.
We may eventually hit a bottom, but not until Blue Apron proves that it can thrive in an Amazon world.