Meal kit makers Blue Apron may be preparing to file for a 2017 IPO, according to Reuters. The report says that the food startup has hired bankers from Goldman Sachs, Morgan Stanley and Citigroup to this end.
The whole thing has stirred up quite the conversation over here at TechCrunch, and we’ve been arguing amongst ourselves about the likelihood that the Blue Apron IPO happens soon, or at all. For what it’s worth, we have sources saying there is no IPO effort under way for Blue Apron yet, and Reuters’ source may have had his or her own agenda.
There are three obvious possibilities here:
- Blue Apron is actually exploring the idea of an IPO. It’s in the early stages, but the company is exploring it nonetheless.
- Blue Apron and/or its bankers are floating the rumor of an IPO to attract potential acquirers.
- Blue Apron neither has imminent IPO plans, nor is it interested in an acquisition.
Any of the above would make for a fairly standard business tactic and story. But here’s the thing: Blue Apron is at the point where it could just sit tight.
The company is facing lots of competition, but it’s an early mover with great brand recognition. The range of M&A suitors one can imagine is broad and varied. While Blue Apron is not reported to be profitable — yet — it’s been investing in marketing and expanding its operations, making quite a land grab.
We asked Blue Apron to confirm or correct the Reuters report earlier today and didn’t receive a response.
Blue Apron is prepping for an IPO
If this scenario turns out to be true, it wouldn’t be the first time in recent history that an unprofitable company went public with candid warnings that business investment outweighed profits. Snap said in its own IPO prospectus that it may never achieve profitability, operating at a net loss of $514.6 million in 2016.
Remember, profitability isn’t the white whale it once was. Just look at Amazon.
It’s also worth noting that the preparatory stages of an IPO can last a couple of years, if not longer, and that Blue Apron could be merely dipping its toes in the water to see if it’s warm.
A company might go public before stabilizing margins and achieving steady profitability for several reasons. The first is that there is a valid growth strategy in place, and a story that the public market can believe in; meanwhile, the company doesn’t have to carve out more equity for private investors.
There’s also the possibility that investors — who’ve now provided Blue Apron with nearly $200 million — are pressuring Blue Apron to get them an “exit,” beat others to a listing and hope public market investors will be convinced into believing there’s a there there.
We think this seems improbable, though.
No doubt Blue Apron is tackling a difficult problem. They want to help people eat high-quality food at home in a more convenient way than they could before. And they’re doing a lot of expensive things to solve that problem — sourcing ingredients, preparing them, packaging and distributing the final product, while also creating recipes and keeping its website fresh. Blue Apron also sells wine and cookware.
However, the pre-profitability requirement for any IPO-seeking company is a good growth story. And Blue Apron has also continued to grow over the years.
Toward the end of 2014, Blue Apron announced it was serving up 1 million meals per month, which averages out to a $120 million revenue run rate, with meals priced around $10 a pop. By the summer of 2015, Blue Apron was operating at a $360 million run rate with 3 million meals sold each month. Around the same time, Blue Apron ate up $135 million in funding at a $2 billion valuation. In April of 2016, Blue Apron was selling 8 million meals per month.
Its estimated revenue last year approached $1 billion, according to an analyst’s note viewed by TechCrunch.
And there’s the added point that Blue Apron struck up a deal with Bill Niman to buy BN Ranch and supply the company with pastured beef, pork, turkey and chicken.
The stage seems to be set rather nicely for the company to eventually go public.
Blue Apron is courting suitors
I’m not saying that Blue Apron’s IPO rumor is merely bait for potential acquirers, but let’s not rule out the possibility that it might intrigue a suitor.
There are a number of obvious candidates: Costco, Whole Foods, Sysco Food Services, Amazon, Walmart or maybe even a food and beverage producer like a Unilever or PepsiCo. And I’m sure there are a few more “outside-the-box” firms also in the running.
Some are less likely than others. While Whole Foods made a bold investment in Instacart, signaling a willingness to bet on the food-tech startups, it also has been struggling of late to merely hold on to customers. It may have more important fish to fry right now.
Walmart and Amazon are also suitable candidates, given the fierce competition in online grocery and delivery, which Walmart appears to be winning. But they’re retailers at heart, and may want to keep their platforms open to selling a range of meal kit, or boxed meal products.
Then there’s Unilever, flying high from a seemingly successful acquisition of Dollar Shave Club for $1 billion in 2016. Unilever paid five times the amount of revenue Dollar Shave Club was bringing in, emphasizing the fact that the company values at a high level both a brand’s relationship to its customers and the subscription commerce model.
A massive acquisition is possible, but an IPO rumor might fire up some fear of missing out among potential buyers, and hasten this kind of deal.
The price tag, however, for Blue Apron, has to be pretty high.
Blue Apron has no imminent plans to IPO
There’s a possibility that this is the earliest stage of exploration and that this IPO is potentially years away.
For one, sources tell TechCrunch that there is no movement on either the IPO front or the M&A front for Blue Apron. Secondly, Blue Apron still has to prove it can scale sustainably and find its way to healthy margins.
E-commerce, at the moment, represents a small but growing portion of overall grocery sales. Meal kit companies, and there are many, are planning to rise on those tides for some time. Alongside Blue Apron, competitors include Plated, Hello Fresh, Sun Basket, Purple Carrot, Home Chef, Green Chef, FreshDirect’s Food Kick service and scores of others, including lots of regional and specialty players.
Why give away your playbook to competitors, and the public, when you’re one of the leading brands in the U.S. market?
That’s what it would take to go public. And it’s one reason we don’t think Blue Apron is there quite yet.
Additional reporting by Lora Kolodny