October 11, 2017
Alex Wilhelm is the Editor in Chief of Crunchbase News, covering the intersection of startups and money.
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HelloFresh, a partially-prepped meal company that operates in both Europe and the United States, intends to go public in Germany, raising around $350 million in the process.

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The German company follows the U.S.-founded Blue Apron into the public market. Blue Aron, a product cognate, struggled on its path to its own IPO. The aftermath of that offering has been even crueler, perhaps, with Blue Apron shedding around half its value after its debut.

Given that the stock market has already partially-digested a competitor, HelloFresh is walking into a buzzsaw.

So why is HelloFresh going public now? Following, is HelloFresh in better financial shape than Blue Apron? And finally, what can the proposed value of HelloFresh teach us about the public markets?

Let’s find out the answers to those questions.

Why Now?

There are many reasons to go public: It’s an opportunity to raise new capital and provide liquidity to investors and employees. But it’s doubtful that HelloFresh would willingly follow Blue Apron so closely free from external stimuli.

Based on that doubt, I suspect that HelloFresh going public is due to markets being at, or near, all-time highs. If you are worried about what valuation your company can command in the public markets, and one of your competitors just tripped over the public-private threshold, you would want a favorable environment for your IPO. And it doesn’t get much more favorable than when public markets are at record highs.

Revenue Quality

To understand the HelloFresh IPO, we have to understand its numbers. Sadly, the firm has no S-1 or F-1 for us to peruse. Instead, we have a company-provided unaudited financial document that gives us a look at the firm’s first half of 2017 compared to the first half of 2016.

There are other documents on offer, but the H1 paper is enough to go on. And given that HelloFresh is a Euro-based company, for the rest of this section, we will eschew dollars for euros.

In H1’17, HelloFresh brought in €435.5 million in revenue against €$180.5 million of cost of goods sold. The resulting gross profit of €254.9 million was more than consumed, however, by the firm’s marketing costs (€123.1 million) and fulfillment expenses (€162.8 million). This is also before general costs (€20.5 million) and other smaller piques are taken into account.

All told, the firm loss €56.7 million in the first half of this year.

To understand whether that number is either too high, mostly-ok, or not so good, let’s examine the firm’s H1’2016 results and then do some comparative analysis.

The company’s revenue in the first half of 2016 was €291.5 million. That top line led to €164.5 million in gross profit and a full loss of €52.9 million. So the firm’s revenue grew from €291.5 million to €435.5 million, a change of just under 50 percent. Its loss, however, grew just 7.2 percent.

That implies that the firm is losing less money over time as a percentage of its revenue. And given how clean the loss split is between the two half-year periods, you can mostly argue that HelloFresh froze its losses in the face of growth.

Of course, it’s better to see losses fall in the face of growth, as then margins improve from both ends. But companies that grow quickly get a pass on many financial tests. The question, of course, is whether HelloFresh’s growth pace is quick enough for investors to see a real path to profits at the firm.

No company can lose money forever.

Public Lessons

Let’s bring our old friend, Blue Apron, back into the mix. I was a bit torn between comparing the HelloFresh pre-IPO financials to Blue Apron’s S-1, and then stacking IPO valuations against trailing, pre-IPO results. But that would be using last week’s newspaper to predict this week’s weather.

We do want to have a similar time period to compare across, of course, so we’ll take Blue Apron’s first and second quarter results (page 8) in hand to use as a measuring stick. Then we can use that prism to frame the HelloFresh IPO ask in terms of valuation to-be-commanded.

  • Revenue of $482.9 million (+29.1 percent, YoY).
  • Cost of goods sold: $332.1 million (+38.5 percent).
  • Net income: -$83.8 million (In the first half of 2016, Blue Apron had net income of $8.6 million).

This is going to get sticky since we are working across currency lines. But before we get too far lost in Forex, what is Blue Apron worth? According to Yahoo Finance: $966.4 million.

Numeric bruises aside, let’s have TechCrunch’s Katie Roof give us the goods on where HelloFresh hopes to land:

HelloFresh, the Berlin-based cooking kit delivery company, revealed that it’s planning to raise up to $353 million in an IPO on the Frankfurt Stock Exchange. The move would value HelloFresh at up to 1.5 billion euros ($1.8 billion) in the public markets. This is below the last private market valuation of 2 billion euros.

So, $1.8 billion by the looks of it, though that number could slide as Blue Apron’s did, before IPO Day.

Taking Blue Apron’s H1 revenue total and doubling it to give us a full-year figure,1 we can deduce that the firm is worth just about nearly exactly $1 for every dollar it brings in.2 (You can already feel in your gut that this is bad news for HelloFresh.)

Quickly, HelloFresh’s H1 revenue converts to $515.7 million (via Wolfram Alpha’s calculation). Doubling that to get a full-year number while aware of our prior caveats regarding that measuring method, the firm, using the $1.8 billion valuation from Roof, is looking for about $1.75 in valuation for every dollar in revenue it brings in.

That’s 75 percent more than what Blue Apron currently commands in the public markets.

But HelloFresh has faster growth, and it has a negative profit margin of 13 percent. Blue Apron’s negative profit margin is a steeper 17 percent, looking at the firm’s respective H1’17 results.

But is that faster growth and slimmer losses on a per-dollar and absolute basis worth the massive revenue multiple premium that the $1.8 billion implies?

Who the hell knows. We’ll find out. But what we can learn today is that HelloFresh is betting that the market’s sentiment regarding Blue Apron does not impact itself.

  1. Of course, at growing companies, this sort of forecasting is more conservative than using MRQ*4. But we could be rolling TTM on the top line front. So if anyone wants to whine, please do it to yourself.
  2. H1’17 revenue times two is $965.8 million. The firm is worth $966.4 million according to Yahoo Finance as of the time of writing.

Illustration: Li-Anne Dias