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July 27th, 2017 under West Texas Talk » West Texas Talk Highlight

The Blue Apron blues

By TOM JACOBS

Who was the worst hurt by the Amazon-Whole Foods merger announcement? Anyone in the subscription meal delivery business, that’s who. Especially Blue Apron. The mega-merger “cost” Blue Apron about $1.9 billion in market value. That’s super ultra slim fast.

The food and meal delivery industry is expanding faster than goat heads in your yard. While many of us in the Trah Cawnty Aryuh remember the familiar Schwan delivery truck, this is somewhat different. Blue Apron, Purple Carrot, Hello Fresh! and others plan menus, ask your preferences, send you the complete meal ingredients, you chop and cook and voila! No shopping, scouring Epicurious.com of The Joy of Cooking, nor resorting to frozen pizza and bowls of cereal, as in our house (What, are we, 17?). And all from your phone app, if you wish.

My husband Vilis and I just signed up for Blue Apron. Our first delivery is this Tuesday and will include ingredients for Chicken Marbella – whatever that is – and Seared Salmon with Vermicelli Noodles. Imagine what goes into getting the food from there to here. There’s planning recipes that will work, covering food preferences from meat, poultry and seafood to vegetarian, provisioning the ingredients from who knows where, and packing and distributing them nationwide so that they are fresh and beautiful. All that work makes me hungry just reading it, and Tuesday suddenly seems too far away.

Blue Apron was founded in 2012 and “went public” on June 30. An IPO – initial public offering or “going public” – is the first time a private company’s stock is available to buy and sell on the stock exchanges. To raise money to grow and sustain its business, a company decides to sell a certain amount of stock and reaps the cash from the sale. A company planning an IPO typically hires an investment bank, which conducts a “road show.” This promotes the company and its stock to institutional buyers (university endowments and pension funds, for example), those who buy with so much money that they can drive the stock price. If they want shares, they have to commit in advance of the IPO.

 

 

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Blue Apron is the leading and most well-known of the meal delivery companies, with $800 million in sales last year. But during the Blue Apron road show, Amazon and Whole Foods announced their merger. Suddenly, it looked like Amazon’s “Amazon Fresh” food delivery would join with Whole Foods to deliver meals and seriously injure Blue Apron and its peers.

Investor fears of competition affected the IPO significantly. Newly-skittish buyers demanded a better price, which the company cut from $15-$17 a share to $10-$11 a share. That drop cost the company over $200 million and sliced over $1 billion Blue Apron’s expected first-day stock market valuation of $3 billion. (A company’s market value is its number of shares times the stock price. Stock price alone is meaningless.)

There was no joy in Blue Apronville, and fears of Amazon’s competitive might have only grown. Keep in mind that insiders – venture capitalists, founders, and company employees – may not sell their shares until after a “lock up” period, typically six months from the IPO. They have watched helplessly as the road show buyers sell. Blue Apron stock started at $10 on June 30 and closed just over two weeks later at $6.36, off 36%, for a market value of $1.1 billion. That’s $1.9 billion off the planned IPO valuation. Blue Apron lost its apron.

Everyone is scared of Amazon these days, and for good reason. First, chains killed local stores, and now Amazon may finish off those left. When it delivers everything by drones, then what? Eventually, governments will remember they have antitrust laws and break up Amazon. It will be just as with the breakup of John D. Rockefeller’s Standard Oil. Those who held on to all the spinoffs did very well indeed. But we’re getting a few decades ahead of ourselves here.

 

Tom Jacobs is the Marfa-based fee-only Investment Advisor and Portfolio Manager of Huckleberry Capital Management, with clients of all means in 20 states and three foreign countries. You may contact him for an informal and free consultation at tom@investhuckleberry.com and 432-386-0488.

Story filed under: West Texas Talk

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