Update: This article has been updated to include a response from Matt Salzberg, the CEO and co-founder of Blue Apron.

One of the most hotly anticipated IPOs of 2017 hit with a thud.

Blue Apron went public on the New York Stock Exchange on Thursday, pricing its shares at $10 apiece, on the lower end of the expected $10 to $11 range. The company, which delivers pre-portioned ingredients to customers' doorsteps via subscription, initially aimed to IPO at a valuation of $3 billion--but revised the share price earlier this week, down from a $15 to $17 range. The move, in part, was a response to Amazon's announcement this month that it would acquire Whole Foods for as much as $13.7 billion.

"Obviously, in the wake of [Amazon's acquisition of] Whole Foods, and more competition in this home-delivery market, it's hard to get excited about this," says Sean Stiefel, the founder of New York City investment management firm Navy Capital. "I still think the valuation is pretty high, and to me that's a red flag," he adds, explaining his decision not to purchase Blue Apron stock.

To his point, the company's revised valuation is around $1.89 billion, just under the $2 billion valuation it clinched when it last raised money in 2015. The revision is especially notable, given that only 4 percent of internet IPOs have revised downward since 2010, according to data from Dealogic.

Of course, Amazon's decision to purchase Whole Foods--thereby increasing the competition in the grocery market--is just one of many reasons that investors are bearish. Another major concern is the possibility that Blue Apron may never turn a profit. In an S-1 filing with the U.S. Securities and Exchange Commission this month, the company revealed that it lost more than $54 million in 2016, on revenue of $795 million. Meanwhile, it spent as much as $165 million on marketing, in an effort to attract and maintain new users. "We have a history of losses, and we may be unable to achieve or sustain profitability," it notes as a risk factor in the document.

Blue Apron CEO Matt Salzberg says that he's taking the long view. "Becoming a public company is an important step in building our business for the future," Salzberg tells Inc. "We are focused on creating long-term value for our shareholders and executing our business plan. Yesterday was the beginning of a new chapter for Blue Apron. It was an exciting day for our company and we look forward to the opportunities ahead. " Previously, he suggested in an interview with CNBC that the company has a strong relationship with existing customers. "The unit economics of what we do are incredible and very strong," he noted, adding that the company generates around $900 to $1,000 per customer over three years. Meanwhile, according to the S-1 filing, it spends around $94 to acquire each of those customers.

Still, the available data would indicate that most people don't stick around for that long. Overall, only around 50 percent of Blue Apron customers continued to use the service after two weeks, while only around 10 percent still used it after six months, according to research firm 101 Data. (Blue Apron has disputed these findings.) The more competition that emerges in the market--including startups Sun Basket and HelloFresh, in addition to tech giants such as Amazon and Uber--the harder it could be for Blue Apron to grow. "The customer acquisition costs are high, and the churn is high," notes Navy Capital's Stiefel. "It's hard to have a business like that."

Others, however, suggest that the market opportunity outweighs these costs. While only around 5 percent of customers in the U.S. have tried meal-delivery services--and just 7 percent have shopped for groceries online in the past month--that number could skyrocket in the coming years, according to a new report from the NPD Group. "It makes perfect sense that as online grocery shopping grows it will drive the adoption of meal kits," said Darren Seifer, the NPD Group's food and beverage industry analyst, in a statement. "Online grocery shoppers can save time by not having to search through multiple websites, and they both work hand-in-hand in meeting the consumer's need for convenience with the delivery of a fresh meal they can prepare at home."

In the interim, though, the proof will be in the pudding. As of publication, Blue Apron shares were trading at $9.63--below the opening price of $10.

Published on: Jun 30, 2017