What's going on?
Blue Apron, the American meal-kit delivery startup, has agreed to “go public” (i.e. complete an IPO) at a lower valuation (tweet this), after initially facing tepid demand from investors.
What does this mean?
Originally, Blue Apron said it would aim to sell shares to new investors at a valuation of $3.2 billion, but revised that down on Wednesday to around $2 billion. The big reduction almost certainly reflects a lack of investor demand at the higher valuation.
Why should I care?
For markets: Investors are nervous about the meal-kit delivery business model.
Blue Apron has exhibited strong revenue growth since its inception, which is often a key determinant for investors. However, it’s also facing some issues. For one, its marketing costs as a proportion of revenue keep climbing (the opposite of what should occur as a company’s scale increases due to, among other things, greater brand awareness). Related to that point is its difficulty in keeping customers: about two-thirds stop ordering within six months. Blue Apron’s stock price could still go up substantially once the stock starts trading on Thursday, but it’s these factors, among others, that caused it to wipe one-third off of its targeted valuation.
The bigger picture: Meal-kit delivery companies are facing a challenge from… yes, Amazon.
Blue Apron also had some bad luck: just as it began marketing its IPO to prospective investors, Amazon’s acquisition of Whole Foods was announced. Blue Apron competes with grocery stores; you’re supposed to subscribe to ingredient delivery instead of heading to the store. If Amazon “disrupts” that market like it has other markets, it could be a very challenging environment.