Blue Apron Stock Flop Hurts Europe's Biggest Startup Factory

(Bloomberg) -- Blue Apron Holdings Inc.’s disappointing performance is claiming victims as far as Europe: Rocket Internet SE shares are dropping as investors doubt if sending dinner ingredients to people’s homes can be profitable.

Rocket Internet fell as much as 4.4 percent in Frankfurt, its fourth straight day of losses, after New York-based Blue Apron said it lost customers and warned that the second half will be worse than the first. Less than two months after going public, the startup’s shares have fallen almost 50 percent to about $5 -- less than the price of one of its meals.

That’s sobering news for startup incubator Rocket Internet, whose meal-kit provider HelloFresh has long been an IPO hopeful and would have benefited from a successful share sale by one of its main peers. HelloFresh generated 597 million euros ($702 million) in sales last year and operates in nine markets including the U.S.

“Blue Apron’s disappointing performance is currently seen by many as a negative cross-read for Rocket Internet and its HelloFresh unit,” Lucas Boventer, an analyst at Warburg Research, said by phone. “That might complicate potential IPO plans of HelloFresh.”

Shares of Rocket Internet declined 4.1 percent to 16.60 euros at 1:09 p.m. in Frankfurt. They’ve lost almost 10 percent this week.

Things have been going well for Rocket Internet recently. One of its biggest investments, food delivery company Delivery Hero AG, pulled off an IPO priced at the top end of the range. Yet HelloFresh’s business model is more complicated: While Delivery Hero mostly processes orders for restaurants that deliver, HelloFresh needs to handle fresh food inventory and assemble ingredients into boxed meal kits, all the while convincing customers of the service’s advantages.

Barclays analyst Andrew Ross cut his recommendation for Rocket Internet to equal-weight from overweight last month, partly because getting outside financing for HelloFresh is difficult given Blue Apron’s trading performance. Rocket Internet rose earlier this year on the news that the Qatar Investment Authority bought a stake in HelloFresh, at a valuation of 2 billion euros.

While HelloFresh remains unprofitable, it has shown improving financials over the past two years. The company boosted sales 45 percent to 205 million euros in the first quarter and increased the number of active subscribers.

Boventer said that while Rocket Internet’s stock is affected by Blue Apron, there is room for upside. Investors should wait for actual second-quarter numbers from HelloFresh to have a better comparison against what’s going on at Blue Apron, he said.

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Ville Heiskanen, Kim Robert McLaughlin