Online food delivery platform Deliveroo has opened up its initial public offering to retail investors and customers, making £50 million worth of shares available to customers who register their interest via the company’s app.
The move has been hailed as a step in the right direction for providing fairer access to initial public offerings for retail investors.
Deliveroo founder Will Shu said ‘far too often normal people are locked out of initial public offerings’ with the only participants being institutional investors like pension funds, adding that he wanted to give ‘as many customers as possible the chance to become shareholders.’
While the offering has been opened up beyond just institutions, investors still need to download the app and if there’s big demand for the shares Deliveroo said it will give priority to its more regular customers. Each customer will be able to apply for up to £1,000 worth of shares.
STILL LOSSMAKING
Amid all the fanfare surrounding the initial public offering and the surge in demand it has seen during the pandemic so far, it remains a lossmaking business.
In 2020, the firm reported an underlying adjusted EBITDA loss of £9.6 million and an underlying loss for the year of £223.7 million, compared to underlying adjusted EBITDA of £231.6 million and an underlying loss for the year of £317.3 million in 2019.
In the same period, Deliveroo grew its gross transaction value (GTV) - the total amount of transactions it processes on its platform - by 64.3% from £2.5 billion to £4.1 billion.
Underlying gross profit grew by 89.5% from £188.7 million to £357.5 million, raising the underlying gross profit as a percentage of GTV from 7.6% to 8.8%.
COMPANY 'NEEDS TO DELIVER THAT MAGIC PROFIT’
AJ Bell investment director Russ Mould said fans of the business will point to the fact that losses narrowed 30% last year and that its underlying gross profit shot up, both in absolute terms and as a percentage of the gross transaction value.
‘That’s likely to be enough to fuel interest for many people in the shares when they come to the London market,’ Mould said, though he warned that at some point it will need to ‘start delivering that magic profit or investors will lose interest’.
He added investors may initially look past the fact Deliveroo is lossmaking and operates in a competitive market, instead focusing on the growth opportunities and potential to play a key role in consolidating the market through mergers and acquisitions, as well as the fact some investors will see it as an easy way to make a quick 10% to 20% gain, the level at which shares in newly listed companies often ‘pop’ on the first day of dealings.
But Mould insisted ‘the fact remains that it is still loss-making once accounting for the costs of running the business. This goes to show that delivering food is not a quick win. It’s about building scale and there are several other firms running the same race.’
