the Blue Apron (APRN) offering

Meal delivery service APRN (originally named Petridish Media) went public yesterday at an offering price of $10 per share through an underwriting syndicate led by Goldman Sachs.

The original pricing range was reportedly $15 – $17, but was reduced to $10 – $11 after Amazon and Whole Foods announced their intention to merge.

The stock traded as high as $11 yesterday, before fading back to the offering price later in the day.  I didn’t watch the stock and there’s surprisingly little price information from yesterday’s trading available this morning, but it seems as if the underwriters made few (if any) “stabilizing” purchases at $10 to keep the stock from closing below the offering quote.

Today APRN opened at $9.98, slipped to $9.50, and is trading at around $9.70 or so as I’m writing this.

Although I have zero interest in owning APRN at this point, I think it’s an interesting issue from a number of perspectives:

–the concept is, I think, for APRN to be the “first mover” in home meal kit delivery.  Doing so would give it brand recognition and scale that rivals starting up later would find difficult to match.  Whether APRN can achieve this position remains to be seen

–as I read the prospectus (meaning: I find it hard to believe what I’ve read), 100% of the proceeds from the offering are going to the company.  None of the VC backers or otheer insiders are cashing out any portion of their positions.  If so, this is either very good (they think APRN is a gold mine) or not so much (they don’t want to scare away buyers)

–APRN is an “emerging growth company,” listing under the provisions of the Jumpstart Our Business Startups Act (JOBS).  JOBS allows early-stage companies to go public without meeting all the SEC-mandated disclosure requirements for public companies.  This makes the financials hard to interpret.  Still, it seems to me that there may be a serious deterioration in APRN’s working capital during 1Q17

–the main metrics/issues for APRN are the cost of acquiring a customer and its ability to retain one once acquired.  Again, it’s hard to get a good read, but Wall Street’s apparent worry–apart from AMZN/WFM–is that the answers to these questions are “high” and “low.”

All in all, the risks of APRN are too high for me, but this will be an informative one to watch.

 

 

 

 

Tesla (TSLA) raising funds

Last week TSLA announced that it is raising $1 billion in new capital, $750 million in convertible notes due in 2022 + $250 million in common stock.

The offering itself isn’t a surprise.  TSLA has been chronically in the situation where analysts can see a point on the near-term future where the company could easily run out of funds.  This is partly the lot of any startup.  In TSLA’s case, it’s also a function of the firms continuingly expanding ambitions.  Elon Musk has been saying for some time that TSLA will will need new capital, too.

What is surprising, to me at least, is that the offering is not bigger   …and, more significantly, that the stock went up on the announcement.

To the first point, why wouldn’t TSLA give itself some breathing room by raising more money?  Of course, it’s possible that the small size is a marketing tactic and that the underwriters will soon announce that, “due to overwhelming demand,” it’s raising the size of the offering to, say, $1.5 billion.  Otherwise, I don’t get it.

To the second, this is just weird.  TSLA shares rose by a tad less than 30% in the first six weeks of 2017 and have been moving more or less sideways since.  So the idea that investors are willing to buy the stock can’t be surprising positive news.  And I don’t see the plus in some commentators’ claims that the market is relieved the offering isn’t larger.  I think the market should be mildly concerned instead.

Something else must be going on.

The only thing I can think of is that Wall Street is beginning to believe that electric vehicles are going to enter the mainstream much sooner than it had previously thought.  At the same time, the Trump administration’s intended moves to make it easier for American car makers to sell gas guzzlers for longer may result in Detroit remaining stuck in the past, paying less attention to electric vehicles.  So market prospects for TSLA may be improving just as competition from the “Big Three” may be weakening.

However, that alone shouldn’t be enough to propel a well-known stock higher in advance of an offering.

 

 

 

Snap (SNAP): non-voting shares (ii)

Two potentially important issues arise with non-voting shares.  The underwriters and prospective investors in SNAP are clearly not worried about them.  Granted, they’re unlikely to emerge as actual issues in the near future, but here they are:

–value investors often buy shares in companies they believe are undervalued by virtue of  having bad management.  Their rationale is that management will change in one of several ways:  existing managers will learn from past mistakes and improve;  the board of directors will replace existing managers with better ones; shareholders will vote out current directors and replace them with better ones; the company will be taken over by a third party, which will toss out the incumbents and replace all of them with more competent individuals.

In the case of SNAP, management, the board and the voting shareholders are basically one and the same.  The likelihood of them firing themselves is pretty small.  And the chances of a hostile takeover are zero.  So the value investor argument for eventually buying SNAP shares that there’s a level below which they can’t go without triggering change of control doesn’t apply here.  So if things turn south with SNAP, the chances of rescue are small.

The results of this situation are plain to see in the Japanese stock market, where disenfranchised shareholders have had to watch their investment in family-owned company shares lie dormant for decades.

–change of control can happen voluntarily.  But does an acquirer have to buy non-voting shares in order to take the reins?  I don’t know.  But I don’t think the answer is clearly “Yes.”  Say Amazon decided to bid for the voting shares of SNAP at double the price of the publicly traded, non-voting ones.  AMZN could presumably then replace management and the board of directors and guide the company in any direction it chose–without buying a single non-voting share.  If this were to happen, my guess is that non-voting shares would plunge in value.  Years of expensive legal wrangling  would decide the issue one way or the other.

A third musing:   Can SNAP declare dividends for voting shares but not for non-voting?  The answer should be in the prospectus, which I haven’t read carefully enough to have found out.  But then I’m not interested in taking part in the IPO.

Tesla (TSLA)’s new common stock offering

the motivation

TSLA has been surprised and pleased by the public response to its proposed new Model 3 (the company has reservations–and deposits of $1,000 each–nearly 400,000 units for a car slated to appear in limited numbers next year or the year after).  …so much so that it has junked its plan to become cashflow breakeven this year (meaning operations would no longer consume cash and might generate it).  It has decided instead to accelerate its factory building to speed the debut of the Model 3.

To do so, it needs fresh capital.

the offering

So, for the third time in three years TSLA is having a public offering.  In a preliminary prospectus revision filed today, TSLA indicates it intends to sell 9.3 million new common shares at a price of $215.  Of that number, 2.8 million are being sold by Elon Musk to pay taxes due on exercise of options on 5.5 million new TSLA shares. The underwriters have the right to sell an extra 1.4 million shares in what is called an “overallotment.”

When the dust clears, TSLA will have raised between $1.4 billion and $1.7 billion and will have about 145 million shares outstanding.

Press reports indicate the offering has occurred today, even though the prospectus says underwriters expect the offering to happen next Wednesday.

my thoughts

–the prospectus contains the most up-to-date data on the company

–the new money will allow TSLA to being volume production of the Model 3 in 2018 instead of 2020

–I’d be a little miffed at the offering price if I had participated in the 2015 stock offering at $242 a share, or bought convertible bonds in 2014 with a conversion price of $350.  Neither, of course, makes any difference for new buyers

–if the press reports are correct, that hasn’t mattered too much to the investing public, either

–I wonder how much retail participation in the offering there is.  Lack of institutional support is usually a bad sign, although I’m not so sure that rule holds true here

–TSLA could barely get off a stock offering half this size last year

–achieving a stock sale like this almost always marks a near-tern bottom for the stock price

–dilution of existing shareholders is minimal and bringing forward the volume launch of the Model 3 by two years is probably a very big positive thing.  So, if the Model 3 is the success it appears to be, the offering will have been good for everyone.