In its IPO filing earlier this month, Blue Apron estimated its valuation at $100 million. Shortly thereafter, the company significantly raised this figure to $510 million, announcing plans to sell 30 million shares priced between $15 and $17 each. This valuation increase highlights Blue Apron’s urgent need to expand its operations and capture more market share in the increasingly competitive meal kit sector. However, this growth comes at a cost, as the company faces high marketing expenses, a decline in average customer spending per order, and growing competition from both grocery retailers and other meal kit providers, all of which are eroding its profits.
Despite Blue Apron’s net revenue soaring from $78 million in 2014 to $795 million in 2016, its losses have also deepened, rising from $31 million two years ago to $55 million last year. The company has recognized these hurdles, admitting to having “a history of losses” and cautioning that it “may be unable to achieve or sustain profitability.” Additionally, it has highlighted various risks to its business, including the threat of foodborne illnesses, shifts in consumer preferences, and a “novel business model” that complicates the assessment of its future outlook.
Balancing investor concerns with market realities has proven challenging for Blue Apron, and its new valuation and stock pricing reflect a compromise between these two forces. Even at the lower end of its price range, investors remain skeptical about Blue Apron’s long-term sustainability. Over the past year, the frequency of orders and the average customer spend per order have both declined. Meanwhile, the company has maintained its customer acquisition cost at $94 since 2014, even as it allocates more funds towards marketing to remain visible among a multitude of competitors.
The potential for Amazon to enhance its e-commerce presence also raises alarms for investors. Grocery chains such as Kroger and Publix have successfully introduced meal kit programs, demonstrating that delivery services do not monopolize consumer demand in this market. Amazon, which currently offers a limited selection of meal kits through its platform, could easily expand its offerings and undercut Blue Apron, HelloFresh, and others on price.
Ultimately, Blue Apron investors are banking on a future where the company can leverage its leading market share to turn a profit. Experts suggest that what Blue Apron truly needs is a dedicated base of high-spending customers. This is achievable, but given its recent financial losses, envisioning such a scenario seems challenging at the moment. Furthermore, the introduction of new products, such as calcium citrate malate and vitamin D3 tablets, could potentially attract health-conscious consumers and provide a new revenue stream, but the company must first stabilize its core business to capitalize on these opportunities.