A host of law firms have proposed class actions against Blue Apron accusing the company of misleading its shareholders, TechCrunch reports. Bragar Eagel & Squire, P.C. filed one suit, which is more or less a case example of the others, claiming Blue Apron reduced ad spending without notifying shareholders and concealed order-delay obstacles and the resultant customer-retention problems.
Quoted from the suit, per TechCrunch: “1) Blue Apron had decided to significantly reduce spending on advertising in Q2 2017, hurting sales and profit margins in future quarters; (2) Blue Apron was experiencing difficulty with customer retention due to orders not arriving on time or with all expected ingredients; and (3) the Company was experiencing delayed orders in Q2 2017 related to its new factory in Linden, New Jersey.”
Blue Apron stockholders have until October 16 to apply as plaintiffs in that suit. Most of the other suits are seeking plaintiffs as well.
The online food delivery has seen its shares drop almost 45 percent since its June 1 IPO. Many analysts have attributed Blue Apron’s struggles to Amazon’s acquisition of Whole Foods, announced in June.
One SeekingAlpha writer argues Amazon will enter the meal-kit space with a more efficient business model that will appeal to a wider range of consumers.
Blue Apron’s subscription-based model, according to the SeekingAlpha piece, requires a degree of commitment that customers are not willing to make. Blue Apron meal kits show up on a customer’s doorstep every week, whether the customer wants them or not. The demographic to which such a system would appeal is small.
Moreover, the subscription model saddles a company with the challenges of adding and retaining customers.
In contrast, Amazon could allow customers to purchase meal kits at any time, and could then deliver the goods to the customer’s door in a matter of hours. Customers could place combined orders containing, for instance, a few meal kits, a few fresh bananas, a bag of basmati rice and, say, a phone charger. The SeekingAlpha piece holds that the consumer market for on-demand food delivered within hours, without a prolonged commitment, outnumbers the market for steady, weekly deliveries.
SeekingAlpha calls BlueApron “one of this [online food delivery] bubble’s most famously disastrous IPOs. TechCrunch notes that shareholders often sue a company in the wake of a disappointing IPO.
“As soon as the stock goes down like that, the lawyers come out,” said Kathleen Smith, a principal at Renaissance Capital, per TechCrunch.
After Facebook went public on May 18, 2012, with a $16 billion IPO valuation—one of the largest in tech history—its stock dropped more than 38 percent in the first year. IPO investors threatened to sue the company over improper disclosure allegations similar to those law firms are making against Blue Apron. In the Facebook case, a judge ruled that because the plaintiffs had not acquired their shares prior to Facebook’s alleged misconduct, they had no grounds on which to bring litigation against the company.
Facebook offers an example of how a company can thrive despite an underwhelming IPO. Since Facebook stock hit its lowest point (23.63/share) on June 14, 2013, it has soared by more than 600 percent. Today, it is worth almost $170/share.
In May, two months after Snap’s early-March IPO, a new shareholder sued the company for wrongfully inflating its user metrics. At the time of the lawsuit, Snap’s stock had fallen more than 25 percent since the IPO. That suit, like those proposed against Blue Apron, pursued class-action status. By all indications, the case has yet to reach any conclusion.
Snapchat stock has continued to drop. Since the suit, it is down almost 30 percent. Today, shares cost just over half of their IPO value.
For all the lawsuits with which shareholders traditionally bombard companies struggling in the wake of their IPOs, few ever go to trial. The plaintiff, according to TechCrunch, must prove that company made “material” false statements and that the plaintiff relied on them. That burden generally proves too heavy. Most post-IPO shareholder suits are either thrown out or settled out of court.
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