When Blue Apron Holdings, Inc. (NYSE:APRN) filed its initial public offering, there was quite a bit of excitement. Investors would get a chance to participate in the new-fangled online delivery industry. But that optimism has fallen flat after some interesting developments in the grocery space.
On Wednesday, the Blue Apron IPO got priced at $10 a share — which was at a steep discount to the original price range of $15 to $17. The lead underwriters on the deal included Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup Inc (NYSE:C) and Barclays PLC (ADR) (NYSE:BCS).
Unfortunately, even with the price cut, there is still not too much enthusiasm for the Blue Apron IPO. As of this writing, APRN stock is only up roughly 6%.
So what’s going on here?
A Blue Apron Primer
Well, to see, let’s first get a backgrounder on the company. Founded in 2012, Blue Apron saw a big opportunity to deliver food kits to consumers. These kits included recipes as well as pre-portioned ingredients. All in all, the goal was to help people eat healthier offerings, but without the drudgery of menu planning and grocery shopping.
From the start, Blue Apron was a hit. From 2014 to 2016, revenues spiked from $77.8 million to $795.4 million. In all, the company has delivered over 159 million meals across the U.S.
Over time, Blue Apron has certainly bolstered its offerings. Just some include Blue Apron Wine, which is a direct-to-consumer wine delivery service, and also the Blue Apron Market, which is an e-commerce marketplace of curated cooking tools and pantry items.
Another key part of the company is the logistics platform. Blue Apron has built a network of over 300 different supplier relationships that have exclusive arrangements. There is also custom-built fulfillment centers that effectively manage perishable inventory.
And what about the business model? Note that Blue Apron has several plans, which range from $60 to $72 per week (this depends on the number of people in a family).
Blue Apron IPO Pros & Cons
Now the market opportunity for Blue Apron is certainly enormous. According to Euromonitor, the U.S. grocery sector generated $781.5 billion in revenues last year — and the foreign market is eight times this amount.
As for the online market, it is relatively small, at about $9.7 billion. Yet, growth is expected to average at about 8.5% until 2020. By comparison, the traditional grocery market is forecasted to grow at only a 1.3% clip.
Despite all this, Blue Apron definitely faces some tough challenges. Perhaps one of the most threatening is the churn of the customer base. Based on the number crunching of Emory University professor Daniel McCarthy, it could be as much as 60%.