Blue Apron is now in it's third week of trading following a highly anticipated IPO. Clearly, things have not gone as planned. The company priced its IPO at $10.00/sh for an enterprise value of $1.7B, notably less than $2B valuation in their last private round, and has been dropping steadily since. The company's unicorn status is now being challenged as its share price approaches $6.00 (see below).
On the one hand, Blue Apron is a success story. The company created a new consumer category from scratch and managed to go public just 5 years after founding. No small feat. Yet, Blue Apron did not live up to the high expectations placed on them by private investors. Much of reason why has to do with concerns around their fundamental business economics in addition to Amazon's recent entry into the space.
Blue Apron's performance serves as a wake-up call for all food startups and their investors. In fact, the lesson applies to all consumer startups that over-index on growth versus profitability. Public investors will often value a company highly despite short-term losses if there is a path to profitability or if there is a strong technology play. However, if neither of those elements is present, then the company's valuation will look closer to that of a traditional offline business rather than that of a technology company. We can get a sense of the valuation divide by making a comparison to other more successful food technology businesses such as Just-Eat, GrubHub and Delivery Hero.
Just-Eat and Delivery Hero have become juggernauts at ~$6B valuations. GrubHub is also quite valuable despite investors having some concerns around long-term profitability due to hyper-competitiveness in the US food space. These three companies operate two-sided food ordering marketplaces that are very capital efficient with strong network effects, in addition to high order frequency, strong margins, and no churn issues. The difference in valuation relative to Blue Apron is stark. What is also striking is just how similar these two-sided food marketplaces are, in particular Just-Eat and GrubHub.
As you can see, Just-Eat and GrubHub have nearly identical revenue profiles and EBITDA ramps. Just-Eat seems as if they might be able to drive higher EBITDA margins than GrubHub long-term and thus they are valued much more highly. I did not plot Delivery Hero since they are in "investment mode" and have very negative EBITDA right now but their core markets look like Just-Eat's, i.e. 40-50% EBITDA margins at scale.
While Blue Apron's revenue ramp is impressive, they are losing money and showing a lot of weakness right out of the gates. They grew Q1 2017 revenue 42% year-over-year which is solid but way lower than historical growth. And, to achieve that growth, marketing spend increased a whopping 138%, gross margins decreased, and cohorts and churn seem to also be deteriorating.
Growth at all costs has been the prevailing narrative for years. The moral of the story is that growth can't be the focus forever. At some point, profitability and overall business health are what drive long-term value.