Last Thursday, a start-up called Blue Apron went public.
Investors were giddy with excitement. This was the most anticipated stock market debut since the IPO of SnapChat (NYSE: SNAP) in March.
Unfortunately, Blue Apron fell flat on its face.
After going public at $10 (NYSE: APRN), it went sideways… and then down.
Today it trades at about $9. So if you got in at the IPO, you’ve lost about 10%.
But here’s where things get interesting:
A different set of Blue Apron investors isn’t down a penny…
In fact, they’re currently sitting on profits of about 20,000%.
Today, I’ll show you how they did it…
And then I’ll show you how to position yourself to do the same thing.
$795 Million in Meals
Blue Apron is a meal-in-a-box subscription service.
Basically, it sends subscribers all the ingredients they need to make delicious meals “from scratch.”
Just unpack your box, follow a simple recipe, and voila, you’re Julia Child.
For about $60, you get 6 meals — 3 dinners for two.
And with about 1 million subscribers, Blue Apron reached $795 million in revenue last year. That’s up about 10x since 2014, when its revenue reached just $77 million.
With its rapid growth, the company became a prime candidate for an IPO.
But right before its IPO, two red flags appeared…
RED FLAGS
First of all, investors learned that, in the first quarter of 2017, Blue Apron lost $52 million on revenues of $244 million.
In 2016, the company had lost about the same amount — $55 million — on $795 million in revenues.
For a fast-growing business, the $55 million annual loss didn’t raise a flag…
But losing that much in a single quarter revealed a major weakness in its business:
Simply put, instead of its marketing costs going down as a percentage of revenues (because of, for example, greater customer awareness), its costs were skyrocketing.
The second red flag comes courtesy of a scary new competitor: Amazon.
You see, Amazon just paid about $14 billion to acquire Whole Foods — and that puts it in position to dominate the meal-delivery market and crush its competitors.
Amazon has already been testing a meal-kit delivery business in a handful of cities. But now that it owns Whole Foods, it can ramp it up exponentially. Who knows? Maybe with an Amazon Prime membership, we’ll get our meals delivered for free.
Because of these red flags, Blue Apron was forced to cut its IPO price drastically, from a range of $15 to $17, to just $10.
But that price cut wasn’t enough to create a first day “pop” for its IPO.
Instead, anyone who took a chance on APRN’s IPO lost their lunch.
200x Their Money
But enough about the “losers.”
Now I want to tell you about a different group of Blue Apron investors…
These investors owned regular Blue Apron shares, but they haven’t lost a dime.
In fact, while APRN’s stock market investors were crying into their meatloaf, this other group was out popping champagne.
You see, even after APRN got clobbered in the stock market, these other investors were still sitting on profits of 20,000%.
That’s 200x their money — enough to turn a $5,000 investment into $1 million.
How is this possible?
Simple. They got into Blue Apron before its IPO...
They invested when it was a tiny private start-up, buying their shares for just pennies when the company was valued at less than $10 million.
So even if they sold their “clobbered” shares today, they’d still be up 20,000%.
Not “Rare” for Public Investors; “Well Done” for Private Investors
Is this scenario unusual, where stock markets investors lose their shirts while private investors make fortunes?
Not at all. To show you what I mean, look at some recent IPOs:
On June 29th, health care company Aileron Therapeutics (NASDAQ: ALRN) went public at $15. It now trades at ~$11, for a loss of about 30%.
On May 12th, tech company Veritone (NASDAQ: VERI) went public at $15 and now trades below $12, for a loss of about 20%.
On April 28th, biotech company Zymeworks went public at $13. It currently trades at about $8, for a loss of about 50%.
On February 3rd, resources company Ramaco Resources (NASDAQ: METC) went public at $13.50. It currently trades at $6, for a loss of far more than 50%.
This list of losing IPOs goes on and on…
And in each case, the private investors behind these companies made a fortune.
By getting in early, they locked in their profits.
Make a Change — and Make Some “Change”
Does this story about Blue Apron sound familiar?
If you’re a long-time Crowdability reader, it should… because every few months, we show you another example of stock market investors losing money, while private investors in the same companies are making fortunes.
Early-stage private investors — ordinary investors just like you — are turning tiny investments into windfalls.
Remember, by investing while a company is still private, you can protect yourself from the ups and downs of the stock market, and you can maximize your profits.
Happy investing.
Best Regards,
Founder
Crowdability.com
