Question

Blue Apron IPO Leaves a Bad Taste:

Critical Thinking Questions:

1. What issues should executive of company such as Blue Apron consider before deciding to go public? In your opinion, was the company ready for IPO? Why or why not?

2. How else could Blue Apron have raised funds to continue to grow? Compare the risks of raising private funding to going.

3. Is it still a public company, and how has it stock fared ? would you invest in it? Explain your reasoning,

Answer 1

(1): The issues that executives of a company like Blue Apron should consider before deciding to go public are – timing of the IPO, ability of the company to generate profits in the future, changing competitive scenario and its impact on the company etc. At the time of going to IPO Blue Apron was making losses and the company was far from making profits in the foreseeable future. Also the competitive landscape change as Amazon announced its entry. The combination of all these factors ensured that IPO of the company was a failure. Thus we can say that the company was not ready for an IPO. This is because, clearly, the company and its executives were in a rush to raise additional funds for expansion purposes and it is due to this rush that the executives misread the market and the company’s potential to raise money through an IPO.

(2): Blue Apron could have raised funds by taking funding through the Private Equity (PE) route. In this instance the company would have sold a part of its equity to a PE company/fund and would have remained a private company. It could also have tapped a venture capital firm to get additional funding but remain private. The risks of raising private funding when compared to IPO are limited. A PE fund invests in a business with an objective of selling its stake in future at a profit. It also helps in management aspect and so there are limited risks associated with private funding. The only thing is that in case of private funding capital constraints will be put in place.

(3): Yes, the company is still a public company and the stock is currently trading at $9.06. Clearly the stock has not fared too well and I would not invest in it. This is because of the flawed business model of the company. The company’s acquisition cost per customer is too high and this does not allow it to generate profits. Secondly, in future, the competition will intensify further causing the company’s ability to generate free cash flow to weaken further.