Deliveroo fell by up to 30% at the food delivery startup’s public trading debut on Wednesday, marking a pessimistic start to the largest initial public offering in London in a decade.
The company’s shares were trading at an intraday low of 271 pence ($ 3.78) per share, below the offer price of 390 pence ($ 5.35). The price rebounded to 313 pence ($ 4.31) at 8:45 am, London time.
“Deliveroo went from hero to zero with the much talked about stock market debut that fell flat,” said AJ Bell’s chief investment officer, Russ Mold. “You better get used to the nickname ‘Flopperoo’.”
The UK-based company had quoted 384.6 million shares at 390 pence per share, the bottom of its range traded between 390 pence and 410 pence ($ 5.65), hoping to reach a valuation of 7.6 billion pounds ($ 10.5 billion). But it is the first of London’s top five businesses this year that has failed to open with the highest target valuation, losing more than £ 2 billion ($ 2.7 billion) in market value in its trading debut.
Analysts say their IPO worsened when several fund managers said they would not support the business due to concerns about work practices, scaring many of those who applied for their actions and possibly running to get rid of them.
“This reflects the cautious approach that large funds have shown to stocks amid concerns about work practices and governance,” said Neil Wilson, chief market analyst at Markets.com. “Many of the UK’s big funds are not on the side, which was failure number one.”
Deliveroo, backed by Amazon, which is traded on the London Stock Exchange under the symbol ROO, raised £ 1.5 billion ($ 2.1 billion) with funds from investors. It could have raised 1.77 billion pounds ($ 2.4 billion) if the company had priced its shares at the upper limit of its IPO range. But the offer price was lower due to the fall in shares of food service companies like JustEat and Delivery Hero on Monday, the Wall Street Journal reported, citing a spokesman.
The company has grown to launch into the stock market in part thanks to the exploitation of its workers, said Connor Campbell, financial analyst at SpreadEx. “Now, this exploration is one of the main reasons behind its sour start as a publicly traded company,” he said.
He approached his market debut in a unique way compared to other IPOs. Only institutional investors can participate in Deliveroo’s market debut on March 31, but private investors who buy its £ 50 million ($ 68.6 billion) community offering can participate as soon as unconditional negotiations begin on 7 March. April.
Deliveroo was founded in 2013 by former banker Will Shu and his childhood friend Greg Orlowski. The British company offers food, groceries and alcohol for on-demand delivery via an app and transports goods to consumers via a gigantic economy passenger network.
His IPO will be a test for the UK technology start-up industry, where the valuations of non-profit and high-growth companies have become increasingly optimistic, even with the public investor’s appetite for riskier businesses not yet tested.
The company faces strong competition in the direct rivals sector
and Just Eat, in addition to niche food delivery apps like Gorillas, Getir and Weezy.
Deliveroo makes money mainly by charging its restaurant and grocery partners a commission on each order, up to 35% in some cases. Although it expects to benefit permanently from an increase in food orders during the pandemic, the company remains in deficit.
The company reported a pre-tax loss of £ 225.5 million ($ 311 million) for the year 2020, a loss less than the £ 317.7 million ($ 438 million) lost in 2019. Revenues were up 54% to £ 1.1 billion ($ 1.5 billion) from 2019.
Other revenue streams include its subscription program for regular consumers who want lower delivery rates; food procurement businesses; licensing its dark “Editions” kitchens to restaurant brands; and its “Signature” marketing platform.
Its listing is also closely monitored thanks to the two-class ownership structure, which makes Shu retain control of the company in a model similar to listings in the United States. The CEO will have 20 votes per share, while the other shareholders will receive one vote per share.
The IPO is expected to make Shu a wealthy man, as he plans to sell approximately $ 36 million in shares, leaving him with a stake in the company worth about $ 662 million.
Although Deliveroo has indicated that institutional investor demand has exceeded supply in preparation for its IPO, a number of large companies have publicly stated that they would not support the company.
Aviva, Rathbones, Legal & General and others cited Deliveroo’s lack of profitability and the reputation and financial risk posed by the fact that its passengers are gigantic contractors rather than workers entitled to a minimum wage.
This happened after the Supreme Court ruled in February that the giant Uber needed to reclassify its drivers, also considered hired, as workers and pay them holidays and a minimum wage.
The IWGB, a British union representing workers in the giant economy, said it was organizing a Deliveroo passenger strike on April 7, when unconditional trade begins.
Goldman Sachs and JPMorgan are joint global coordinators on Deliveroo’s IPO, while Bank of America, Citigroup, Jefferies and Numis Securities are united book brokers.
Insider details everything investors need to know about Deliveroo’s IPO – from its two-class structure to who is making money and who is avoiding it.