Deliveroo course crashes by 30 percent

The delivery service Deliveroo did not get off to a good start on its stock market debut. The price fell by 30 percent compared to the issue price, the market value sank to 6 billion pounds.

Deliveroo: Not very fast on the stock exchange at the start.

So The strategists of Deliveroo’s billion dollar IPO hadn’t hoped for that. On Wednesday, the first day of trading for major investors, the price fell temporarily by more than 30 percent and was still around 20 percent in the end. The issue price had already been set at the lowest end of the price range at 390 pence, but the price fell to 271 pence within twenty minutes of the start of trading. It was one of the most severe losses in a major IPO in a long time. The price later rallied to around 300 pence. However, that is still more than 20 percent below the issue price. The market value of the food delivery app fell on the first day of trading from 7.6 billion pounds (almost 9 billion euros) to 6 billion pounds (7 billion euros).

Analysts pointed primarily to doubts about the corporate structure and business model of the food delivery service founded in 2013. Some institutional investors have complained that Deliveroo founder and CEO Will Shu will have more voting rights than other shareholders. But there is especially skepticism about when and how Deliveroo will finally be able to make a profit. Last year, the company increased sales by more than 50 percent due to the lockdown boom, but posted a loss of £ 224 million, which was also due to high advertising spending. The skeptical investors are wondering how the leap to high profits that justify the billions in value of the app will succeed.

“The biggest concern is with regulation around workers’ rights,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown. The “flexible model” of the Deliveroo courier drivers is one of the most important pillars of the hopes for success. The start-up treats and pays its up to 100,000 drivers in the dozen countries in which it is active as independent contractors. Whether this can be legally upheld in the long term is controversial. Recently, the London Supreme Court ruled on a lawsuit from some Uber drivers that in the UK they are to be paid like employees entitled to vacation and minimum wage. The question of pension contributions could also weigh on Deliveroo, said Lund-Yates.

The company is difficult to evaluate, she said. The issue price of 7.6 billion pounds has valued the start-up at 6.4 times the sales of the previous year, which is over 4.8 times that of its competitor JustEat. Nevertheless, Lund-Yates believes the high expectations for Deliveroo are partly justified. In the corona lockdown, the company experienced a great upswing and even after the pandemic there could be long-term high demand for delivered food. The Deliveroo app offers some personalized options and a very good local delivery approach that outperforms other competitors.

Deliveroo’s IPO was the largest in London since Glencore’s initial public offering nearly a decade ago. Major shareholder Amazon, which invested around half a billion in Deliveroo last year, sold shares for almost 100 million pounds. Founder Shu sold shares for £ 26 million. The company raised nearly a billion in fresh capital through its IPO. So far, only the major investors in the IPO have been allowed to sell and buy the papers in “conditional trading”. All small investors and customers who were allowed to invest up to 1000 pounds per person – up to 50 million pounds in total – via the app and made heavy losses on the first day can only actively trade in unrestricted trading next week.