After all the hype, Deliveroo’s (ROO) IPO (initial public offering) got off to a horrible start and has left thousands of retail investors and customers with very burnt fingers.
From an initial offer price of 390p, the food delivery platform opened 15% down at 331p, and kept falling, hitting lows of 271p before stabilising around 297p at 11am. That means more than £1.8 billion was wiped off the company’s £7.6 billion market valuation in the first three hours of trading, stunning many investors.
LESSONS FOR THE GET RICH QUICK CROWD
This will come as a sharp study in risk for the, presumably, many retail investors that backed the IPO with up to £1,000, hoping to flip the stock for a fast buck. Investing is never easy, and anytime it looks effortless you can bet there are risks hidden from view.
An investor who received the full 256 share allocation at IPO, worth £998.40, would get just £756.79 back if they sold them, based on the LSE’s bid/offer spread data.
Such costly mistakes could scare off new investors in their thousands, robbing them of value creation opportunities for years that more carefully thought through investment planning could have offered. It may also see pushback on possible listing rule changes being looked at by the Hill Review that could make it easier for retail investors to get involved with IPOs.
Deliveroo was London’s largest IPO in a decade and it had risen to prominence through the pandemic. But the company has remained stubbornly loss-making even with millions of Brits turning to fast food deliveries while locked down at home.
Deliveroo reported an underlying loss for 2020 of £223.7 million. That was narrower than the £317.3 million of red ink chalked up in 2019.
GOVERNANCE QUESTION MARKS
The firm has also faced claims of exploitation of its vast army of riders and drivers who, as independent contractors, get no sick or holiday pay, nor guaranteed levels of income for the hours they work. Social media has been flooded with criticism and that has clearly seeped through to fund managers, with many avoiding the IPO altogether.
‘Deliveroo has been able to grow to the point of launching on the stock market in part thanks to the exploitation of its workers,’ said Spreadex markets analyst Connor Campbell. ‘Now, said exploitation is one of the main reasons behind its sour start to life as a public company, with multiple leading fund managers expressing concern over its labour practices.’
