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Blue Apron tries to rescue its stock listing

The meal kit company is doing a reverse stock split because its share price has been too low for too long, says RB’s The Bottom Line.
Photograph courtesy of Blue Apron

the bottom line

Remember when meal kit companies like Blue Apron were going to destroy grocery chains and restaurants?

Yeah, about that …

On Monday, Blue Apron Holdings announced plans for a reverse stock split. Shareholders will receive between five and 15 shares for every share they currently own.

In other words, Blue Apron is reducing the number of shares on the market to increase its per-share value, without increasing the actual value of the company.

The reason? The company needs to inflate the price of its shares, or it will lose its listing on the New York Stock Exchange (NYSE).

Blue Apron has been trading under $1 a share for too long to meet NYSE's standards, and if it can’t get its per-share price above that level, it will trade as an over-the-counter stock.

That’s a bad thing. Over-the-counter stocks are penny stocks that can only be traded by appointment and don’t get any attention from analysts or institutional investors. But they still have to make public filings, so they get all the costs of being a publicly traded company and none of the benefits (namely name recognition).

Something of this nature has been inevitable since Blue Apron's 2017 offering. The IPO did not get quite as much enthusiasm from investors as many thought—its offering price was $7 a share lower than the company had initially hoped.

Then, the company plunged in value in subsequent months amid constant losses, falling below $1 a share by December, which made it among the worst IPOs of the decade, according to Bloomberg.

The problem with Blue Apron was fairly simple: It is a specialty company that tried acting like one that has a broad-based audience. It spent a ton on marketing but couldn’t keep customers long enough to generate profits.

Concerns about profitability abound in IPOs of tech companies and other upstarts. But they have to show customer loyalty and growth, something with which Blue Apron has struggled.

For instance, data from Restaurant Business sister company Technomic shows that while as much as two-thirds of delivery customers stay delivery customers after a year, only 15% of Blue Apron customers did.

The company has had to decrease marketing spending to get to profitability. The company cut its marketing to $14.2 million in the first quarter from $39.3 million a year ago. The results were predictable: Net revenue declined 28%. Blue Apron also changed its CEO.

Ultimately, the problem with Blue Apron was expectations versus reality. The company portrayed itself as an alternative to grocery stores and restaurants, a revolutionary way for customers to get a good, home-cooked meal that is delivered to their home and correctly proportioned.

It’s a good product for customers who have small families and more money than time, and who don’t want to go out to restaurants constantly. That’s a limited market.

The business is also easily replicated by larger players with better-known brand names and more established physical assets that could do the job more efficiently.

CORRECTION: A previous version of this post included incorrect information on the stock split and the exchange where Blue Apron is listed.

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