Meal delivery business Blue Apron opened for trading at $10 per share on Thursday, significantly below the originally proposed range of $15 to $17. It’s also flat compared to the $10 they priced it at last night, meaning the IPO investors have yet to reap any gains.

It also suggests that some investors and possibly some employees who joined the venture-backed company at a later stage are underwater. New York-based Blue Apron was valued at $2 billion in its last private round in 2015 and its current market cap is just below that.

The market will be watching Blue Apron’s first day of trading closely. Most companies “pop” on day one, deliberately leaving room for double-digit percentage gains so that new investors can benefit. If “APRN” doesn’t go up, it will signify weak demand.

The reaction to Blue Apron’s financials has been mixed. On the one hand, they showed strong revenue for just a five-year-old company. Blue Apron brought in $795.4 million in sales last year, a substantial gain from $340.8 million the year before.

But, like most venture-backed companies at the time of their IPO, there are also losses. Last year the company lost $54.9 million and the number was $47 million for 2015.

What investors are most concerned about is the growing marketing spend as a proportion of their revenue, suggesting that there’s high customer turnover. Blue Apron nearly tripled their marketing budget to $144.1 million last year, up from $51.4 million the year before. In other words, they are spending more for each dollar earned.

Subscription businesses have their challenges. In Blue Apron’s case, there is a growing sea of competition with countless meal kit delivery services. Plated, HelloFresh and Sun Basket all offer similar business models, just to name a few. And now that Amazon bought Whole Foods, some are wondering if they will introduce something comparable.

Consumers can also be fickle. While enterprise subscription businesses often have lower turnover because there’s too much friction to change course, people can change their habits on a whim.

The financials, in addition to industry estimates, suggest that a large portion of Blue Apron’s subscribers cancel the service after testing it out. Without solid customer retention, it may be hard for Blue Apron to keep up its growth.

But there’s still a lot of untapped market opportunity. Everyone is a consumer of food, after all.

And as Blue Apron scales, it may be easier for them to tailor their business, making meal selections more customizable. Some also complain that the dinner preparation takes too long, so perhaps they will offer some quicker alternatives.

Late-stage venture-backed companies will be watching Blue Apron, even if they aren’t in the meal space. A rough time in the public markets could suggest that investors are cooling on internet IPOs.

Last year was a slow year for tech IPOs, but then Snap kicked things off in March. We saw a flurry of activity in early spring, but things have started to calm down.

Storage provider Tintri was also supposed to go public today but decided at the last minute to postpone.

Featured Image: Michael Nagle/Bloomberg via Getty Images



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