Competition cools appetite for new offerings

Competition, not cash flow, has become a leading indicator of a successful IPO. Wall Street rallied behind Redfin's mission to take on the staid real estate market but was far less enthusiastic about this year's other consumer tech IPOs – Snap and Blue Apron – as both vendors pursue markets where the largest tech companies already tread.

Redfin seeks to grab share in the real estate brokerage market by developing technology that it claims enables it to find customers and deliver services at a lower cost. In that way it's similar to Blue Apron, which brings a tech-driven business model to the sedate grocery market. After more than a decade in market, Redfin posted $285m in trailing revenue, up 42% from a year earlier. Blue Apron is three times the size of Redfin and has been around for one-third the time. Yet when the two comparable firms began trading shares publicly, they went in opposite directions.

Redfin priced its shares at $15 before it began trading on Friday and closed the day up 45% from there. It added another 15% in early trading on Monday and was flirting with $25 for a market cap that's just shy of $2bn. Blue Apron cut its initial price range as Amazon struck a deal to acquire Whole Foods and move further into Blue Apron's grocery market. Shares priced at the bottom of its revised range and have been sinking since, with some help from a trademark filing by Amazon that suggests that it's launching a competing meal delivery service.

To be clear, competition isn't the only difference. Blue Apron faces questions about the ability of its business to generate a profit. Both companies lose money, but the ratio of revenue to losses has shrunk at Redfin and gone the other way at Blue Apron. Snap provides another example of the challenges of going public under the shadow of a larger adversary. While Snap faces a tough road to reaching 200 million monthly users, Facebook's Instagram has roared past 250 million, fueled in part by selective borrowing of Snap's features, helping send the upstart social media company's shares down by half since its first day of trading.

The contrast between Redfin's successful offering and the struggles of Blue Apron and Snap highlights the towering impact that the largest tech vendors have on the ability of younger businesses to raise capital and generate liquidity. And while risks posed by larger competitors aren't new, the scale and scope of their impact will increase as a few tech firms expand their resources and spread into more consumer markets.

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