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Meal kit distributor Blue Apron files for IPO

Blue Apron Inc., one of several companies that sell ready-to-cook meal kits, said June 1 it plans to make an initial public offering, according to a document filed with the Securities and Exchange Commission.

The offer could be worth up to $100 million, according to the document. Under SEC rules, that amount could change before the company offers stock.

The New York-based company, which has been valued at $2 billion in venture capital funding rounds, is the first meal kit distributor to announce a stock offering slated for a U.S. exchange. The offering will be underwritten by Goldman Sachs & Co. LLC, Morgan Stanley, Citigroup Inc. and Barclays Plc.

Shares of the company will trade using the symbol APRN.

Investors have been waiting for Blue Apron and its competitors to go public for years. HelloFresh, Blue Apron's German rival, filed paperwork for an IPO on the Frankfurt Stock Exchange in 2015, but the company withdrew its prospectus after a tepid reception from investors. Since then, investors have been waiting for one of its peers to step up.

Along with competitors such Purple Carrot and Sun Basket, Blue Apron has become a rival to brick-and-mortar grocery stores in the fresh food business, a sector that had previously been sheltered from e-commerce competition.

"Our market opportunity is broad, as we believe our customers choose to buy Blue Apron meals instead of shopping at grocery stores, ordering takeout, or eating at restaurants," the company wrote in its filing with the SEC.

The announcement is also one of precious few high-profile IPO filings so far in 2017, along with Frontier Airlines and cloud computing firm Cloudera Inc.

The June 1 filing gave potential investors a glimpse into the company's finances. Sales at Blue Apron have ballooned in recent fiscal years, rising to $795.4 million in 2016 from $77.8 million in 2014. For the quarter ended March 31, revenue was $244.8 million, higher than the $172.1 million in the year-ago quarter.

Despite that revenue growth, some costs of doing business have gone up, weighing on the company's profitability.

Blue Apron's annual spending on marketing, which includes campaigns on mediums ranging from television to social media to podcasts, rose to $144 million in 2016 from $14 million in 2014. That increase, in turn, has driven up the price the company pays to acquire new customers to $94.

And while the company says it earns more than four times that in revenue in the six months after a customer signs up, "over time our Customers on average order less frequently or sometimes cease ordering," the company wrote in its prospectus.

The cost of goods sold, including ingredients for the company's meal kits, has also ticked upward, rising to 68.8% of sales for the quarter ended March 31 from 65.4% in the year-ago quarter.

"We expect such expenses to decrease as a percentage of net revenue over time as we continue to scale our business," the company wrote in its filing.

The company's offering also leaves significant shareholder control with founders Matthew Salzberg and Ilia Papas. Together, they will control 39% of class B stock, a share of which comes with 10 votes. Shares of class A stock, which Blue Apron will sell when it makes its offering, come with one vote each.

Salzberg, who is the company's president and chief executive officer, and Papas, its chief technology officer, founded the company in 2012.

Since then, the company has sold about 159 million meals. It currently has more than 1 million customers.

The filing does not guarantee that the company will sell shares. Under SEC rules, it could withdraw its IPO prospectus, for instance, if it decides to sell itself to a larger firm instead.

Meal kit makers are likely targets for grocers and other traditional retailers looking to get in on the high-growth area, analysts at Morningstar wrote in an April note.

"We believe Wal-Mart Stores Inc., Kroger Co. and Amazon.com Inc. would be the most likely acquirers," the analysts wrote.

While analysts have attributed Blue Apron's growing sales in part to the convenience of making a meal from prepackaged, premeasured ingredients, the company wrote in the filing that its "core product is the cooking experience we help our customers create."

That experience gives Blue Apron a value to investors that e-commerce giant Amazon has not created, D.A. Davidson analyst Linda Bolton Weiser said in an interview with S&P Global Market Intelligence.

"People are very afraid about retail" and the sector's ability to deliver returns, Weiser said, adding that investors are looking for "companies or brands that are Amazon-proof."

Still, she said, the company will have to address concerns about its costs with potential investors as it prepares to offer stock. "They're going to have to present some strategy so investors can understand what the road to profitability is," Weiser said.