Question

Blue Apron IPO Leaves a Bad Taste Founded in 2012, Blue Apron is one of the top meal-kit delivery services doing business in the United States. Started by three co-founders—Matt Salzberg, Matt Wadiak, and Ilia Pappas—Blue Apron provides pre-portioned ingredients (and recipes) for a meal, delivered to consumers’ front doors. According to recent research, the U.S. meal-kit delivery industry is an $800 million business with the potential to scale up quickly, as more and more consumers struggle to find time to go grocery shopping, make meals, and spend time with family and friends in their hectic daily lives. As word spread among foodies about the quality and innovative meals put together by Blue Apron, the company’s popularity took off, supported by millions in start-up funding. Costs to scale the business have not been cheap—estimates suggest that Blue Apron’s marketing costs have been high. Despite the challenges, by early 2017 the company was selling more than 8 million meal kits a month and decided to go public in an effort to raise more money and scale its operations, including a new fulfillment facility in New Jersey. According to the IPO paperwork filed with the SEC, the company had net revenues of $84 million in 2014, which increased to $795 million in 2016. However, those ambitious numbers were not without warnings: company losses increased in the same time period from $33 million to $55 million. Even with those larges losses on its balance sheet, Blue Apron decided to go ahead with the IPO and hired Goldman Sachs and Morgan Stanley, two top stock underwriters, to figure out the right price for the initial offering. While Blue Apron and its underwriters were finalizing stock prices, Amazon announced plans to acquire Whole Foods—a move that could negatively affect Blue Apron’s business going forward. Even after Amazon’s announcement, Blue Apron and its financial advisors priced the initial offering at $15 to $17 a share and met with investors across the country to inform them about the IPO, which would value the company on paper at more than $3 billion. As part of the IPO strategy, Blue Apron executives needed to communicate a strong financial picture while providing potential investors with an honest assessment of investor demand, especially for institutional investors, who typically are repeat buyers when it comes to IPOs. According to sources close to the IPO experience, Blue Apron’s bankers told investors late in the IPO pricing process that they were “closing their order books early,” which meant there was a heightened demand for the stock—a signal that the stock would be priced in the original $15–$17 range. A day later, however, Blue Apron amended its prospectus with a price range between $10 and $11 a share, which shocked potential investors—a move greeted with criticism that Blue Apron’s messaging now lacked credibility in the eyes of the investment community if the company priced the IPO $5 lower per share than originally estimated. With that sudden change in the IPO offering, investors walked away, and the $10 initial offering for Blue Apron stock actually declined on its first day of trading. As of this writing, the stock has lost close to 40 percent from the original $10-per-share price. With continued consolidation in the meal-kit delivery sector inevitable, Blue Apron is at a crossroads when it comes to generating revenue and stabilizing costs while trying to sign up more subscribers. One of its competitors, Plated, was recently acquired by the Alberstons grocery chain, and Amazon has already trademarked the phrase, “We do the prep. You be the chef,” as it relates to prepared food kits. Critical Thinking Questions What issues should executives of a company such as Blue Apron consider before deciding to go public? In your opinion, was the company ready for an IPO? Why or why not? How else could Blue Apron have raised funds to continue to grow? Compare the risks of raising private funding to going public. Use a search engine and a site such as Yahoo! Finance to learn about Blue Apron’s current Prepare a brief summary, including the company’s current financial situation. Is it still a public company, and how has its stock fared? Would you invest in it? Explain your reasoning.

Answer 1

What issues should executives of a company such as Blue Apron consider before deciding to go public

• Competition and Industry outlook
• Timing of market
• Delay if neccessary
• Prepare Early
• Communicate expectation
• Opportunity miss

1) Compettion and Industry Outlook

Blue Apron got public in just 15 days after when Amazon acquire large stake in whole food. This news was already there in the market that Amazon s going for big and directly competing the blue Apron. Amazon had better vision and supply chain compared to blue Apron

2) Timing of market

Blue Apron IPO timing was too much bad timed. It should have been at least 1 month before Amazon acquired Whole food. Blue Apron planned to sell 30 mn shares for offering price of 15-17 $ per share resulting valuation of 3.2bn $. Blue Apron share price listed at 10 $ per share and crashed to 6 $ per share withinn just few days and lost 60% of total valuation just because of timing of market IPO placement was very bad.

3) Delay if neccassary

Another way to avoid entering the market at the wrong time is to be in a position that allows you to delay your IPO if necessary. If your need for the capital is critical, then you may have no choice but to go public and put yourself at risk for such negative consequences. you should plan your business in such a way that transparency is not rushed, you will not be forced to go public in times of uncertainty.

4) Prepare early

When a company is ready for an IPO, it has the ability to jump into the market when the IPO window begins to open. The company should have perfect financial planner, reporter and auditing reporters. The company must have effective financial reporting systems, well-trained staff, and corporate governance practices that must be prepared for the IPO.

5) Communicate expectation

Cpmpay should have proper governance and information management system that was lacking here. They do not have proper governance. They dont have future plan. they do not have how to compete with Amazon plan. they did not build any quarter growth strategy.

6) Opportunity miss

They did not market their IPO in advance, that delay by under writters and also company itself cost him Amazon to acquire the whole food business.

In your opinion, was the company ready for an IPO? Why or why not?

No, company was not ready for an IPO.

1) Compamy was in loss

Comany had loss of 33 mn $ on revenue of 84 mn $ in 2014. That is company was operating on 25 % of operating loss. For any food industry, that focuses on supply chain part of it , considers to be huge operating loss. This needs to be as low as possible.

2) Compamy could not come n profit after 2017 too

In 2017, Company had revenue of approx 800 mn $ with loss of 55 mn $. So, though losses percentage on revenue reduced, it could not turn into profits

3) Future was bleak

As amazon was in direct and better competitor of it, future was not bright as well. investors doubt if company can turn into profit in forseeble future as well.

How else could Blue Apron have raised funds to continue to grow?

If Blue Apron needed more working capital to grow its business, it could have considered

1) Secured short tern loan

A secure loan means that you offer security that your loan will be repaid. The risk is that if you are unable to repay the secured loan, the lender may sell your mortgage to repay the loan.A secure loan is secured by an asset. A purchased item, such as a home or a car, can be used as security. The lender will hold the title or title deed until the full loan is paid. Some items can be used to repay the loan as well. This includes shares, bonds, or personal property.

2) unsecured short-term loans

An unsecured loan is a repayment of a secure loan. Includes items such as credit cards, student loans, or personal loans . Lenders take great risks in making this loan, because no property can be repaid in the event of a mistake. That is why interest rates are so high. If you are rejected because of unsecured debt, you can still get a secure loan. But you should have something important that can be used as collateral.

3) getting long-term debt financing like term loans, issue of bonds, and mortgage loans

Long-Term Debt is any amount of outstanding debt that a company has matured for 12 months or more. It is classified as non-current liability in the company's balance sheet. The maturity period of LTD can vary anywhere from 12 months to 30+ years and types of debt can include bonds, deductions, bank loans, loans, etc.

Compare the risks of raising private funding to going public

With a private company, you may not be able to attract top talent with benefits such as stock incentives. A reduced market for bonds or shares in your business, which could have a long-term impact on the value of the business as a whole. A limited number of potential investors, who may not want to invest more than the need to place bonds or shares at a significant discount to compensate investors for their high risk and long-term return. They can’t easily sell their stake in the company by going through social change. It may not be so difficult to find a buyer for a well-known, highly efficient, funded company, but in the case of a lesser-known company, only potential buyers can be other existing owners. Selling stocks in the secondary market is often a challenge, especially as potential buyers should be allowed.

Blue Apron Brief financial summary

Blue Apron is still a public comapny.

Financial trend:

Profit Margin	-15.72%
Operating Margin (ttm)	-12.2%
Return on Assets (ttm)	-11.75%
Return on Equity (ttm)	-81.18%
Revenue (ttm)	426.71M
EBITDA	-24.88M
Current Ratio (mrq)	1.30
Total Debt/Equity (mrq)	166.71
Diluted EPS (ttm)	-5.05
Current Share price	6 $

Brief- financials and analysis - Stock not to buy

1) Business Flaw model

The main problems that have plagued the company since its inception, however, remain - this business is not just growing. That said, maximizing performance does not drive Blue Apron into profit. And, even if the business can eventually reach a decent economy, better-equipped and well-equipped competitors can intensify their competitive efforts to keep the Blue Apron stealing market share.

Analysts are imitating growth rates starting next year, and marketing consolidation efforts were beginning to accelerate high-level growth in the first quarter of this year even before coronavirus infection.

2) Financial weak

Another way to look at the above data would be to estimate total income, EBITDA, and revenue by looking at numbers as a percentage of revenue. There are no numbers that get - and remain - that are better regardless of the size of the Blue Apron.

That doesn’t mean it wouldn’t be possible for Blue Apron or other food kitchen names like Plated and Home Chef to open a steady profit. These terms can negotiate even better prices in the future, perhaps to cultivate their own ingredients. Cost of customer purchases can be high, but if Blue Apron can bring in enough repeat customers, it won't have to spend a lot of money to bring newcomers to the fold.

3) competitors

Big names like Kroger , Walmart , and Amazon are also in the food business. Not only do these insiders within the food retail business now enjoy access to suppliers, but they also already have a large customer base coming to all types of goods. In contrast, Blue Apron should ultimately turn a profit by simply selling food kits, Amazon and Walmart could lose food kits - not that they are ways to attract consumers.

4) Shift in habit

Consumer buying habits were already undermining even before the COVID-19 epidemic shook the world. As soon as the outbreak is found and passed, many people plan to make a small trip to the grocery store. A recent survey conducted by the consumer preferences survey Shopkick suggested that among people who buy more online mainly due to COVID-19, 60% of them will continue to buy more online even if the epidemic is over.