Layoffs and cost cuts have commenced.
Let’s get this straight: Layoffs are not a sign of growth for a young money-losing company whose hoped-for explosive growth somehow had justified a “unicorn” valuation not long ago. But that’s what’s happening at Blue Apron, three-and-a half months after its IPO.
In an SEC filing, the meal-kit provider disclosed that it had “implemented a company-wide realignment of personnel to support its strategic priorities” — namely laying off “approximately 6%” of its workforce across “corporate offices and fulfillment centers.”
With 5,393 employees as of June 30, per its first earnings report as a public company on August 10, 6% of the workforce would amount to about 320 people.
At the time, the company also reported that sales rose 18% to $238 million in the quarter. At that rate it would reach about $1 billion in annual sales. But to accomplish this, the bottom line swung from a gain of $5.5 million in the year-earlier quarter to a loss of $31.6 million in the quarter. If you have $1 billion in sales and you cannot make money, when can you make money?
The company had $61.6 million in cash and cash equivalent on hand as of June 30 – which is not a lot, considering that in the first half it burned through $70.7 million in cash just from operations, and it burned another $90 million to purchase equipment.
Raising more money from selling more shares is the standard procedure for startup companies after the IPO, but this is getting harder for the company and more dilutive for existing shareholders since its stock price has plunged.
During its last round of funding in June, 2015, Blue Apron was valued at $2 billion. When its IPO was promoted in June this year, there was talk that the company would price its shares in the range of $15-$17, hoping to raise nearly $600 million. At the midpoint of the range, the IPO price would have given the company a valuation of about $3 billion. But there wasn’t any appetite for the shares, and so the company slashed the price. It went public on June 29 at $10 a share. Today, shares closed at $5.30 and dropped further after hours. Its market cap is now down to $1 billion.
This plunge in share price makes selling more shares a very tricky affair. So now it’s time to slow the cash-burn so that it can hang on for a while longer.
The layoffs would cost about $3.5 million “in employee-related expenses, primarily consisting of severance payments” to be incurred in Q4, it said.
In his lay-off letter to employees today, CEO Matt Salzberg provided some hints that this was a cash conservation effort:
- The layoffs were “necessary as we focus the company on future growth and achieving profitability.”
- “The actions that we took today flowed from the roadmapping and reprioritization exercise that we recently undertook. As part of that work, we identified the need to reduce some roles, open others, and streamline decision making for greater accountability.”
Blue Apron has found itself amid a gaggle of startups with similar business models that burn cash in prodigious amounts. And Big Food has jumped into the game:
- Amazon’s purchase of Whole Foods hangs out there as a threat. Earlier this year, Whole Foods partnered with meal-kit company Salted. And still before the Whole Foods acquisition, Amazon filed a trademark for the phrase: “We do the prep. You be the chef.” It will cover “prepared food kits” that will be “ready for assembly as a meal.”
- Albertsons Co., which has 2,300 stores among its brands across the country, acquired meal-kit provider Plated in September. “This move advances a shared strategy to reinvent the way consumers discover, purchase, and experience food,” it said.
- Kroger, the largest supermarket chain in the US with nearly 2,800 stores, has moved into meal kits that are prepared in its stores. In August it announced that it would expand its in-house meal kits to 37 stores by the end of September.
In early August, Blue Apron already rattled investors – one month after the IPO – when it shuttered a fulfillment facility in New Jersey. The 1,270 workers, at the time about 24% of its workforce, were given the opportunity to move to a new larger locations also in New Jersey. But not all made the move.
The week before that mess erupted, one of the co-founders Chief Operating Officer Matt Wadiak stepped down from his role.
As of September 29, short interest in Blue Apron amounted to 11.4 million shares, or 38% of the public float! This may put a floor under the shares near term since short sellers turn into buyers to take profits when shares sink.
So it’s tough out there. But there is nothing wrong with young companies struggling to make a go of it against all odds, and against the giants that dominate their industry and that want to crush these startups. And there is nothing wrong with these companies not making it when the odds converge on them and when they run out of cash. That’s how it works. And there is nothing wrong for those that make it to give their founder, investors, and employees a decent payday.
What’s wrong are the insane valuations that Wall Street and the venture capital community place on these companies and the pump-and-dump process that includes the IPO with which they’re trying to unload their stakes. This leaves gullible investors licking their wounds.
For Sears, the bankruptcy prospects heat up. Read… Why Did Sears Holdings’ Largest Outside Shareholder Suddenly Jump Overboard?
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.