Meal Delivery Service Blue Apron To Go Public On NYSE

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Earlier today (January 20th) Citron Research, run by Andrew Left, issued a report that was bullish on Blue Apron (NYSE:APRN ). I have never spoken to anyone at Citron, but their investment thesis for APRN was largely consistent with mine plus some important added factors and data points.

Similar to my report, Citron compared the valuation of APRN to HelloFresh (OTCPK:HLFFF) noting that the 5x differential in multiple of sales. They went deeper to show that while HelloFresh is much larger and therefore has reached critical mass to absorb fixed costs, APRN has better unit economics with their customers.

Source Citron Research Blue Apron Report

So while HelloFresh can claim scale and profitability advantages over Blue Apron at the company level, Blue Apron is earning more at the customer level.

While the valuation differential between the two public companies is pretty egregious, Citron also detailed the valuation discrepancy between APRN and Gousto, a private UK focused meal company in which SoftBank (OTCPK:SFTBY) invested $100 million last week at a $1.7 billion valuation. Gousto is a smaller company, but its valuation dwarfs APRN.

Blue Apron versus Gousto valuation

Source Citron Research Blue Apron Report

Citron also pointed out that the home meal industry has undergone some consolidation with companies of similar to smaller revenue bases being acquired at multiples of revenue far above APRN's.

Blue Apron versus acquired home meal companies

Source Citron Research Blue Apron Report

While I focused on APRN's cash balance after the near $80 million rights offering that it completed at $10/share and lack of cash burn providing a backstop to valuation, Citron ascribed more value to the company's 150K people who have been subscribers for over 3 years and the production facility the company has on the books for $120 million.

Source Citron Research Blue Apron Report

While I think those 150K subs certainly have value, the company could lose them if execution faltered. One can say the same thing about the brand value. Brand names can have a short shelf life with bad service or if the company stops operating for any extended period of time (e.g. what is the name Pets.com worth?) Similarly, I argued the production facility is tremendously valuable to the company as they can grow without spending to add capacity. I imagine another entity could come in and use that facility but I do question whether it would be worth $120 million to anyone unless they're in the exact same business as it is fairly specific use. I make the same argument in response to a comment in my first article about the company's $500+ million net operating losses (NOLs). They are valuable to the company but less useful to another.

In all, I generally agree with most of the liquidation value laid out above except for the brand value. That just seems too high for me even if the company spent hundreds of millions of dollars advertising. But even haircutting that 90% to $30 still yields about $600 million of liquidation value or $19/share.

Citron speculated that APRN either effectuates a turnaround (return to subscriber and revenue growth) or is acquired by a strategic operator i.e. HelloFresh, a grocery chain, home delivery operator, or someone looking to break into the industry. I think those are all possible and if some the multiple would likely be well over 1x revenue, which is ~$475 million or about $16/share, which is around the same level I thought would be the minimum take out. Citron went out there and posited the possibility of Peloton (PTON) acquiring Blue Apron in an effort to tie nutrition with exercise. Frankly, I thought that idea was unlikely when I first read it this morning and PTON's disastrous announcement this afternoon indicated they have some bigger issues on their hands than expanding into food service.

Again, while I have never spoken to anyone at Citron, I generally think they do excellent work. Even though we analyzed this company from slightly different angles (and their presentation was much more in depth than my first article) I am happy to have smart, savvy analysts seeing the value in the company too. The stock was up 20% since my writeup before this report hit. I think Citron and I both agree there is much more upside.

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Disclosure: I/we have a beneficial long position in the shares of APRN either through stock ownership, options, or other derivatives. 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.