As CNBC reports, Blue Apron Holdings (APRN) has lowered its offering price range from $15-17 per share to $10-11 per share. Additionally, the company is still planning on selling 30 million shares to raise roughly $300 million from its IPO.
This IPO price cut comes at a time when investors are skeptical about the outlook for companies in the grocery industry following Amazon’s (AMZN) recent acquisition of Whole Foods (WFM). Nonetheless, competitors in the industry have yet to determine just how much impact the Amazon-Whole Foods deal will have on their businesses.
Reflexivity in Blue Apron’s IPO Due to Amazon Concerns
The decision to lower the firm’s IPO price range was most likely due to a weak road show of the offering. For readers unfamiliar with the IPO process, the roadshow is essentially a marketing campaign executed by the investment banks that are underwriters for the offering.
If there is not enough demand for a new stock offering from institutional investors, the initial offering price is either lowered or the IPO itself is delayed. In many cases, initial public offerings are delayed due to deteriorating conditions in the overall stock market. However, on rare occasions such as that of Blue Apron, a serious company-level or industry-level development can stifle demand for a new stock offering.
This trouble for Blue Apron amid its IPO process is a classic example of George Soros’ theory of reflexivity. Simply put, investors’ extreme fear of Amazon entering the grocery industry has limited the IPO price range for Blue Apron. Subsequently, Blue Apron has lowered its price range which will limit how much it will receive in proceeds from the IPO. By receiving less cash, the company’s financial position will be weaker. All else equal, this will probably hinder the stock price after it starts trading in secondary markets.
Blue Apron Holdings (APRN) Stock Rating
As we previously discussed in our coverage of Blue Apron’s IPO, the company has experienced tremendous revenue growth over the last two years. For more information regarding the company’s financial performance, here is Blue Apron Holdings’ S-1 Registration Filing.
The Stock Trader Blog is keeping Blue Apron on its List of Bullish Opinions. However, we expect a more pronounced contraction in the company’s stock price once shares become available to short. For the few days following the IPO, we expect the stock to perform in accordance with historical IPO price patterns (a sharp price increase followed by a contraction). Over the next couple of months following the first week of trading in secondary markets, it is quite possible Blue Apron stock may underperform the overall market. However, we remain bullish on this stock for growth investors with a longer investment horizon.