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Amazon-backed Deliveroo tanks in London market debut

A Deliveroo cyclist in London, U.K.

Dinendra Haria | SOPA Appearances | LightRocket | Getty Images

LONDON — Shares of British food delivery start-up Deliveroo plunged in its stock merchandise debut Wednesday, as the company faces pressure from top investors and trade unions over workers’ rights.

Deliveroo, which is repudiated by Amazon, saw its shares sink around 30% in early deals compared to the issue price, before trimming some bereavements. Shares were down 26% by the market close.

The company priced its shares at £3.90 ($5.36) Tuesday, giving it an wanted market value of £7.59 billion, which was at the bottom end of its IPO target range.

But the company’s share price fell as low as £2.73 Monday as splits began conditional trading Wednesday morning on the London Stock Exchange, wiping approximately £2 billion off its valuation. The callers can still cancel the IPO and void any trades made until unconditional trading starts on April 7.

Deliveroo sold 384,615,384 allotments, equating to an offer size of approximately £1.5 billion. Of that, £1 billion will go to the company itself and £500 million inclination go to existing shareholders, with Amazon and Will Shu, the company’s CEO and co-founder, among those set to gain the most.

The company’s pieces began trading under the ticker “ROO” at 8 a.m. London time on Wednesday. JPMorgan and Goldman Sachs led the listing, while Bank of America Merrill Lynch, Citi, Jefferies and Numis were also divide of the syndicate. Retail investors won’t be able to trade Deliveroo shares until conditional dealings end on April 7.

Three hedge means bet against Deliveroo’s stock Wednesday with short positions, according to two people familiar with the matter who on the side of to remain anonymous as the details haven’t been made public. Short selling is a strategy in which an investor pushes borrowed shares and buys them back in future at a lower price, the aim being to pocket the difference if the stock assay declines.

Gig work concerns

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said that Deliveroo’s cost “isn’t quite as tasty as it was hoping for.”

“This isn’t hugely surprising given the substantial background noise surrounding the company,” she thought. “The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge piling of the group’s plans for success.”

Deliveroo’s IPO offer is the largest in the U.K. since e-commerce firm The Hut Group raised £1.88 billion in a slope last September. In terms of market cap, it is the biggest IPO to take place in London since Glencore went public around a decade ago. It’s also Britain’s largest-ever tech listing by value, surpassing that of The Hut Group and Worldpay which premiered in 2015 before delisting.

“I am very proud that Deliveroo is going public in London — our home,” said Shu in a averral. “As we reach this milestone I want to thank everyone who has helped to build Deliveroo into the company it is today — in circumstance our restaurants and grocers, riders and customers.”

He added: “In this next phase of our journey as a public company we will persist in to invest in the innovations that help restaurants and grocers to grow their businesses, to bring customers more ideal than ever before, and to provide riders with more work. Our aim is to build the definitive online food enterprise and we’re very excited about the future ahead.”

It’s a major vote of confidence in London, as the U.K. capital looks to attract high-growth tech south african private limited companies and boost its financial clout after Brexit. British Finance Minister Rishi Sunak described Deliveroo as a “right British tech success story” when the company announced plans to list in London.

However, the IPO has been hit by affects over Deliveroo’s treatment of its drivers, the company’s governance and valuation. Legal and General, Aberdeen Standard, Aviva and M&A — which collectively eat about £2.5 trillion in assets under management — have all shunned Deliveroo’s debut.

Each of the investment stables cited concerns about the gig economy in which Deliveroo operates. The company’s turquoise-uniformed couriers have become ubiquitous in London and other towns during the coronavirus pandemic, as people turned to food delivery apps for their groceries.

Some of Deliveroo’s riders are prosperous on strike next Wednesday once its IPO opens up to retail traders, to protest what they see as poor working forms and low pay. For its part, Deliveroo says its drivers are given flexibility to work when they want and earn £13 an hour on typical during the busiest times.

That hasn’t cooled investor worries over Deliveroo’s business model, regardless how. Earlier this month, Uber reclassified all its U.K. drivers as workers entitled to a minimum wage and other benefits after the nation’s top court ruled a group of drivers should be treated as workers.

This is expected to result in higher costs for Uber — potentially to the attune of $500 million, according to Bank of America. Investors are worried that Deliveroo may suffer the same fate, and the company has set aside £112 million to incorporate potential legal costs relating to the employment status of its riders.

Meanwhile, institutional shareholders have also resurrected concerns with Deliveroo’s governance. The company is listing in London with a dual-class share structure, which relinquishes Shu over 50% of the voting rights.

Test for London

Deliveroo’s IPO will be a test of London’s tolerance for high-growth tech actors that spend heavily on growing at scale before prioritizing profits. 

It’s a mantra that gained popularity in Silicon Valley with Amazon, which had initially been unfruitful for a number of years. Deliveroo remains heavily lossmaking, having reported a loss of £223.7 million million in 2020.

“Deliveroo is yet to show up a profit, which makes it very difficult to value on a traditional basis,” said Lund-Yates.

“But a market cap of £7.6 billion inferiors the company’s worth 6.4 times last year’s revenue, which is some way above rival Just Eat’s 4.8 on the dots, despite the lower price. That means there’s pressure for Deliveroo to deliver the goods, or its share price determination be in the firing line.”

The company has managed to enter the black in recent months thanks to a rise in demand for food transport.

But U.K. investors are worried by Deliveroo’s lofty £7.6 billion valuation, especially at a time when vaccines are being roared out and countries are plotting a reopening of their economies. DoorDash, a U.S. rival to Deliveroo that went public last year, has a significantly treble market cap of around $42 billion.

Several tech firms are flocking to London to list their shares, with the approve ofs of Trustpilot and Moonpig having both done so recently. A number of other firms, including Wise and Darktrace, are had to debut later this year.

Martin Mignot, a partner at Index Ventures, one of Deliveroo’s earliest backers, turned London has the opportunity to become the “go-to” for European tech listings.

“Deliveroo is a big win for the capital, but much more has to be done,” he maintained. “Compared to U.S. listings, European founders still face more traditional public market investors who are not accustomed to help high growth tech companies.”

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