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Blue Apron Turns Red; Tumbles Below IPO Price As Underwriters Give Up

So much for the long anticipated debut of the food delivery IPO, with the big customer churn problem and even bigger cash flow problem.

One day after the company IPOed at a downward revised price (seeing its market cap at $1.9 billion, below its last private round valuation of $2 billion) and broke for trading into the green, only to close at exactly $10.00, Red Blue Apron has now tumbled to $9.50, down 5% from its IPO price just yesterday as the underwriters have given up on protecting the $10 IPO price... and the company.

As a reminder, on Wednesday, Blue Apron sold 30 million shares for $10 each, raising less than two-thirds of the $510 million it had initially targeted. Hours before the pricing, the company lowered the IPO range to $10 to $11 a share, down from $15 to $17. The underwriters hoped the price cut would be sufficient to prevent immediate selling. They were wrong.

Sadly, for Blue Apron, there was good reason for the latest selling avalanche. As Bloomberg reported overnight, shortly after raising $300 million in IPO proceeds, Blue Apron will need much more cash, and soon.

The unprofitable meal kit-delivery company, which touted its growth prospects to potential investors on its IPO roadshow, has leaned on its marketing strategy to build a customer base. That outreach eats up a fifth of the company’s total spending.


Blue Apron believes its cash and borrowing capacity will be sufficient for at least a year, it said in its revised deal prospectus after lowering its IPO price range. The company added that its liquidity assumptions may prove to be incorrect, and it may increase the borrowing capacity under its revolving credit facility or raise additional funds through equity or debt financing arrangements.

Needless to say, the IPO downsizing was bad news for a company that had a free cash flow deficit of $74 million in the first quarter (multiply by four for the rough full year estimate), and only $61 million of cash on hand. The problem is that while Blue Apron saw a 133% increase in net revenue to $795 million last year, marketing expenses increased 180% to $144 million, according to its deal filing.

Blue Apron’s business is cost-intensive: It first sources ingredients, chops and packages them in fulfillment centers, before sending them for home delivery.

That's reflected in its balance sheet: Blue Apron has relied on outside funds to fuel its growth. The company raised $195 million from investors including Fidelity Investments and Bessemer Venture Partners, according to its deal filing. The company also increased a revolving credit facility to $200 million. Now, it was lucky to find the greatest fools of all: those who bought its stock.

Alas, that story has now ended.

The story here is almost entirely one of expenses,” said James Gellert, chief executive officer of the financial health analytics firm RapidRatings. “People should be concerned that they say they’ve only got 12 months. If you’re IPO-ing and you’ve only got a 12-month runway, you’re going to be appealing to momentum players and not long-term holders of your stock.”

Worse, with its reduced IPO, Blue Apron no longer intends to pay down existing debt with the proceeds, according to its deal filing. Instead, the funds will all go toward working capital, capital expenditures and general corporate purposes.  The problem: APRN will have to raise more equity in the next few months as its cash, even with the IPO proceeds, runs out.

Meanwhile, if the stock is already crashing to sub-IPO levels without underwriter support, long before shorting is even allowed, we dread to think just how fast this particular "tech startup" will last once the vulture start circling.