Meal delivery darling Blue Apron is set to price tonight and trade tomorrow at the NYSE. It's getting a lot of interest from the IPO community for one principal reason: Amazon's purchase of Whole Foods has changed the dynamics of home delivery, a business a lot of players want to get into.
This morning, the company cut its expected IPO range to $10-$11, from $15-$17 a share. It is still offering 30 million shares. It's likely Amazon spoiled this party.
Why is home delivery a hot topic for investors? "It's a great way to touch customers directly, particularly high end customers," Kathleen Smith from Renaissance Capital told me. "You can put a lot of items through that channel, not just food. So you can sell wine, almost anything." Indeed: Blue Apron already offers wine.
Here's the good news: There is decent growth. They grew top-line at 42 percent in the last quarter, with a revenue run rate likely to hit $1 billion this year, according to Renaissance. Gross margins of 33 percent are healthy. They have a lot of repeat orders, which account for 92 percent of revenue. It seems reasonably priced: one common metric, price-to-sales multiple, is 2.7 times, according to Smith. Grubhub, Wayfair, Shutterfly and other competitors trade at a roughly 3.0 price-to-sales multiple.
Here's the bad news: large and growing losses, because they are spending a lot on marketing. It's still losing money, $50 million in the first quarter. Customer acquisition costs – the cost of getting each new customer – are rising.
Most ominously, the competition is ramping up. Hello Fresh, which is ready to go public in Germany soon, is already in the U.S. There are others, including Home Chef and Plated, but the big white shark is Amazon.
Amazon Fresh right now is just doing grocery delivery, and while even that has not been a strong suit for them, you can be sure that home delivery is a factor in why they wanted Whole Foods.
And then there's Instacart, which also does same-day grocery deliveries. Here's an interesting twist: one of its biggest investors is Whole Foods, which reportedly invested $36 million in Instacart last year. What does Whole Foods do now, assuming the Amazon-Whole Foods deal goes through? Buy all of Instacart? Incorporate it into Amazon Prime?
Either way, it spells major competition for Blue Apron.
If this is all nothing more than a delivery story, then clearly Blue Apron does not have a very wide moat. But Smith emphasizes that there is more here than just a delivery service. "Blue Apron is not just a delivery company, it's an experience. It's supposed to make people feel good about healthy food that you're making yourself."
Of course, there is not much of a barrier to entry, even for that story.