(Bloomberg) — Blue Apron Inc. jumped as much as 20% after seven analysts recommended investors buy the stock, citing the company’s leadership in the burgeoning meal-kit delivery market.
“We believe Blue Apron is addressing a large multi-billion dollar market that is nearly all offline and taking spend away from both traditional grocers and restaurants,” said RBC Capital Markets analyst Mark Mahaney.
The votes of confidence pushed Blue Apron, No. 197 in the 2017 Internet Retailer Top 500, up to as high as $7.86 in New York, marking the biggest intraday increase since the company went public late last month. But that’s still well below its IPO price of $10 and five of the 11 analysts who initiated coverage Monday warned that Blue Apron shares shouldn’t be valued at more than that. Some of the analysts were underwriters of the IPO.
New York-based Blue Apron delivers weekly boxes of portioned fresh groceries that correspond with enclosed recipe cards. It’s the largest of dozens of startups that offer similar services and is the first to enter the public market in the U.S. While meal kits don’t even account for 1% of overall food spending in the U.S., analysts say the market has the potential for fast growth. Being ahead of the pack means Blue Apron is in a good position to take advantage of growing interest in meal kits and add more customers quickly, the analysts said.
Still, there’s significant uncertainty as to whether meal kits will be anything more than a niche category and that Amazon.com Inc. (No. 1) threatens to overwhelm smaller players in the online food market. Amazon has shown that it’s serious about getting into fresh food with its bid to buy Whole Foods Market Inc. and its patent application for prepared-food kits as well. Blue Apron fell as much as 12% when news of the patent emerged.
“Competitive moves from Amazon and investor concerns around customer retention have put significant pressure on the stock both before and after IPO pricing,” said Canaccord Genuity Inc. analyst Michael Graham. “We believe this has created a bargain opportunity.”
Blue Apron’s entrance to the public market was overshadowed by Amazon’s Whole Foods bid announced just a week earlier, leading the meal-kit company to cut its IPO price by more than a third. Blue Apron had told investors that its product is different from grocery delivery, but Amazon’s trademark meal-kit application threatens that argument.
Amazon’s efforts to muscle in on markets that smaller technology companies have already pioneered don’t always pan out. The e-commerce company announced plans in 2015 for a marketplace for small-batch artisan-made goods, called Handmade, encroaching on a market that Etsy Inc. and EBay Inc. were already leading. The announcement sent Etsy’s shares spiraling. But in the years since, the company has said it hasn’t seen a material impact from Amazon’s marketplace, which also hasn’t succeeded in dominating the broader handmade goods category. Etsy’s shares are up 24% this year.