Blue Apron IPO Looks Attractive

| About: Blue Apron (APRON)

Summary

Meal-kit market leader, Blue Apron, prepares for a $3B IPO.

This hot and trendy start-up enjoys incredible buzz and popularity that drives impressive sales growth.

With its attractive valuation and rapid growth, investors should keep this IPO on their watchlist.

The surging popularity of meal ingredients delivery services is coming to Wall Street as the super trendy and popular, Blue Apron (Private:APRON), is preparing to go public. Blue Apron is not an ordinary groceries delivery service like FreshDirect, Amazon Fresh or Instacart, rather, it offers deliveries of boxed fresh ingredients for a meal that customers can cook themselves at home. A Blue Apron box costs around $10 per serving for members of one of the weekly plans; the company also offers its members complimentary kitchen accessories like cookware, bakeware, knives, prep tools, cookbooks, and even wine. Blue Apron is expected to be the first player in the meal-kit market to go public and the first consumer technology company to IPO since Tinder's parent, Match Group, went public last year.

The Market

Food start-ups and meal-kit delivery start-ups, in particular, have enjoyed an incredible surge in demand and popularity in recent years as e-commerce, online services, and an increased interest in cooking has taken off. The most significant player in this niche is Blue Apron, which has enjoyed a tremendous popularity since it was founded in 2012. The company employs thousands of people who slice, dice, and handle ingredients to more than 8 million meal servings every month.

The impressive success of Blue Apron and other players, such as Plated, the vegan service Purple Carrot, the healthy meals-focused Peach Dish, etc., attracted many new companies into the market, driving a very crowded business environment, as it often happens in newly rising segments. The recent significant player to join the meal kits market is Amazon Fresh (NASDAQ:AMZN) that extends its long lasting partnership with Tyson Foods (NYSE:TSN) to offer meal kits under the 'Taste Makers' brand. The two giants are joining forces to compete with smaller players and mainly Blue Apron on a share of this rapidly growing market. Initial projections estimate that the meal kits market will grow from $1B in sales in 2015 to more than $10B in worldwide sales by 2020.

Health and Safety Scandal

Like many other online delivery companies that operate massive fulfillment centers, Blue Apron faced harsh accusations of unsafe work conditions and public health violations, as was revealed by Buzzfeed news earlier this year. Blue Apron commented that the company had improved its security and tightened its relationship with the local police to improve safety in its Richmond facility. Also, the company appealed and reduced some of the fines it received for health violations and continues to cooperate with local authorities in this matter. This widely-covered story might receive enormous media coverage, but it has a minimal impact on the company's performance and IPO plan.

Funding and Valuation

Since it was founded four years ago, Blue Apron raised nearly $200M when most of the money was raised last year in Series D funding round at a $13 share price. The company was valued at $2B in the latest funding round and its valuation already appreciated 22% to $2.4B that reflects a $16.27 share price. The surging popularity of the delivery services for boxes of pre-measured ingredients suggests that a Blue Apron IPO will attract a healthy demand for shares that could potentially be attractive for investors.

Assuming that Blue Apron ships around 8 million servings each month, the company is on the path to generate an annualized run rate of $1B in revenues. This sales run-rate gives Blue Apron an incredibly attractive P/S ratio of 2.44 based on the most recent valuation. However, the company could stretch its P/S to range from 3 that reflects a 20% upside from the current valuation, and up to 4 which is slightly lower than Match Group, TripAdvisor (NASDAQ:TRIP), and Yelp's (NYSE:YELP) ratio. This P/S range reflects a share price range of $20 to $27.

Summary

The meal kits market is one of the rapidly growing markets in the startup and technology arenas, and Blue Apron is one of the distinctive leaders of this trend. As private market investment has been cooling down for a while, Blue Apron targets the public capital market to raise additional funds for business expansion. After overcoming significant challenges, it seems that Blue Apron is poised to grow exponentially. The extreme growth that is expected for this market, together with a relatively attractive P/S ratio and valuation, makes Blue Apron an attractive IPO.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.

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