By Liam Proud
LONDON (Reuters Breakingviews) - Meal-kit delivery service HelloFresh could prove to be the corporate equivalent of a soufflé: enticing at first glance, but prone to sagging. Given an unproven business model and the flame-out of U.S. rival Blue Apron after its own initial public offering, the loss-making German group’s plan to float belongs in the deep-freeze.
HelloFresh said on Tuesday it plans to raise between 250 million euros and 300 million euros in a Frankfurt initial public offering. Largest shareholder Rocket Internet abandoned a previous IPO attempt in 2015 due to concerns over investor demand and market conditions. It’s not clear why now will be any better.
Shares in Blue Apron, which also ships pre-prepared recipe ingredients to time-poor urbanites, have roughly halved in value since a June listing, and the group trades at around a one-times multiple of forecast sales. At a similar rating, HelloFresh might be worth just under 1 billion euros, based on Barclays estimates of its revenue – about half the upper-end valuation that Bloomberg reported on Oct. 6.
Granted, some of Blue Apron’s problems are unique, such as “operational challenges” in its fulfilment centres and a dependence on the promotion-heavy U.S. market. But both companies are reliant on costly marketing to buy growth. The German group has even cooked up a new accounting measure: earnings before interest, taxes, depreciation, amortization and marketing, which was 122 million euros higher than EBITDA in the first half of 2017. If getting ahead is a question of piling on marketing spend, HelloFresh could face problems should a giant like Amazon, fresh from its acquisition of Whole Foods, or a major grocer muscle in.
Fortunately there’s no need to serve up this particular dish just yet. Loss-making HelloFresh needs fresh capital to keep growing, but shareholder Rocket Internet is flush with cash after selling shares in Germany’s Delivery Hero and it stake in e-commerce group Lazada. That might be a better source of funds for a company that has all the ingredients for a post-IPO flop.
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