Yes, Thursday was a tough day in the stock market, but Blue Apron’s flat performance is no sizzle — might this be a fizzly line in the sand for tech IPOs? In the meantime, and elsewhere in the land of Sizzle/Fizzle, cash continues to shine, pouring forth from shiny ATMs, while Capital One might be, well, a bit stressed.
If you can’t stand the heat, don’t stand in the stock market kitchen. Or float an IPO.
Are the (blue) apron strings frayed?
Blue Apron has been saddled with, at least initially, the IPO blues.
OK. That’s enough with the (admittedly only somewhat witty) lead-ins to what, of course, is a discussion of Blue Apron’s initial public offering.
No doubt you know by now that amid a stock market sell-off, which saw big names and small names alike bounced downward by skittish investors, Blue Apron made a stab at gains for its first day of trading. And then those gains evaporated. But then again, they were gains on a no good, terrible trading day that saw tech-focused stocks, as measured by the NASDAQ, off more than 2 percent at one point.
But, on the other hand (not to sound like an economist, per the old joke, but there we are), what does it mean when a company in a presumably hot sector notches only a flat close on its debut? Blue Apron had priced its IPO at $10 a share, and that was at the lowest end of the $10 to $11 expected range. At about $10, Blue Apron grabbed roughly $300 million from an offering of 30 million shares.
All gains are not priced alike, and while some green amid a sea of red seems sizzly, look twice. The stock was actually up more than 9 percent within the first few hours of trading and then settled at the aforementioned price.
Friday is another day, to be sure, and the shares may be buoyant. But lukewarm performance in what has up until now been a hot tech market — tech stocks as whole have been up in the mid-teens percentages this year — makes an observer mull whether to dig in or back away from the table. Blue Apron had to slash its offering range from the $15 to $17 range to the $10 to $11 range to gin up interest.
The stock market, it is said by some, is a voting machine, and then it is a weighing machine. From this we can gather that popularity, or lack thereof, greets a new issue. Then as time goes on, the quality of earnings and cash flow and balance sheets, and the business model represented by a stock, win out in the end (and this is what guides, in general, value investing).
The road from here to there is a rocky one. Blue Apron may have the less than stellar luck to follow Snap out of the IPO gate. Snap. You remember them? The ascendant tech IPO that, well, snapped when it reported results? Turns out that investors get nervous when profits prove elusive. Thus, a possible tech stock market fizzle, should this indeed be a harbinger, where the $2 billion valuation is the same as implied by a Blue Apron funding round two years ago.
CNBC news reports that Blue Apron’s IPO range cut is a bit of an anomaly, and the air here is not the rarefied sort that you want to breathe: Only 4 percent of IPOs have re-jiggered their ranges to the downside in the past seven years, the site said, quoting DeaLogic.
The Amazon for Whole Foods deal has also shaken up what could be considered the eating industry. It’s not just about shopping in the aisles but also about shopping online, this Amazon foray, as we have seen this company do all that it can — and with more to come — to broaden its eCommerce reach into every corner of consumables. Investors who are not investing in Amazon may not like the smell, competitively speaking, of what Amazon is cooking, as it has the financial heft to do just about anything it wants, and sustain a loss in doing so, in order to gain market share.
And the whole concept of online grocery shopping has, well, online in it, and Amazon is all about that online thing. Will food delivery be a big enough pie that everyone can coexist? (Mmm. Pie.) Maybe, maybe not, but, the ones with the biggest war chests with which to do battle win the wars. That may prove true even as people are happy to subscribe, with recurring dollars, to different services, as evidenced by retail commerce subscription conversion data.
Blue Apron recognizes the need to gain market share, with the firm’s marketing dollars being spent to the tune of $144 million last year versus $51 million in 2015, according to filings. At the same time, losses were up through the two years, from $47 million in 2015 to just under $55 million in 2016, even as revenues grew too, from $78 million in 2014 to $795 million last year.
But again, eyes to the bottom line: The marketing burn comes in an effort to stanch churn, and, as David Pakman, who serves as partner at venture capital firm Venrock told thestreet.com, “the very high churn rate means that they must spend a huge amount just not to shrink [or] to replace the 12 percent to 15 percent of customers their customers they’re losing every month. That is a noose around their necks.”
Apron strings as noose? One trading day does not a trend make. But Blue Apron would do well to get all burners aflame.
Happy Half-Century ATM: Cash and carry? How about carry cash? Cash still wins out at the point of consumers’ wallets, and ATMs still thrive. Hard to believe that the venerable dispensing machines, ubiquitous in many parts of the world, have hit the half-century mark and still have room to grow, as banks find ways to leverage their imprint beyond the traditional branch model. But in terms of wearing the years well, consider hard currency, where the lifespan stretches back thousands of years and where, in Europe, depending on where you look, cash usage is projected to increase on the order of as much as 4 percent, compounded annually, as noted by our cash index.
Prime Day: No longer a day, now Amazon’s Prime Day is seven of them. Retailers have a new, longer-lived avenue beyond Black Friday to boost black bottom lines in July, as the eCommerce juggernaut will run its inaugural Amazon Prime Week from July 9 through July 15. The success of that event, typically marked by the biggest single sales day for the company, may indeed be replicated six more times.
B2B Payments: Likely to garner fresh attention as innovation and profit potential in this arena are poised to top B2C, according to some estimates. The Global Payments Innovation Jury conducted a study that says the stage is set for increased traction in B2B, and that investment in B2B technologies hit $12 billion in the period spanning March 2015 to March 2016, up 40 percent from the same period between 2014 to 2015. B2B payments also have an advantage over B2C’s relatively low margin, high-volume model, said the Jury.
Stress Tests: Dodd Frank reset or no, when banks struggle through stress tests, warning bells go off. Capital One, already hit with souring lending, has some hurdles here. Capital One was the only U.S. bank to get only conditional approval from the U.S. Federal Reserve to pay capital out to its investors. Those who passed the stress tests can pay out roughly 100 percent of earnings to holders; conversely, Capital One has been ordered to submit a new capital plan by the end of December, and the Fed has, as previously reported, “taken issue” with the way the bank assesses risk in one of its more important (and yet to be identified) businesses.
Google: Long time coming, after seven years and perhaps even expected. Google has been ordered by the European Union’s financial industry overseers to pay up, and pay up big. The company has to give up $2.7 billion in the wake of investigations that found it had manipulated search results to put its own results above competitors,’ to the latter’s disadvantage. The fines show a sharper regulatory gaze, especially in Europe, bearing down on eCommerce.
Tech Stocks: The end of the quarter is nigh, and for a while on Thursday, it may have felt like the end of the stock portfolio. In midday trading on Thursday, the Dow Jones Industrial Average was off 240 points, while tech stocks saw a drubbing marked by the NASDAQ being down 2 percent. The slip means that the tech sector, up 15 percent for the year before Thursday, may be in for a bit of volatility, as investors fret about the U.S. economy at large and as GDP grew at a rather anemic annualized 1.4 percent pace.