Deliveroo Shares Drop on Stock Market Debut

A number of major UK investors have voiced concerns over the gig economy worker model. This has led Deliveroo shares to drop and significantly plummet on its stock market debut.

Investors were initially offered shares in the food delivery business at 390p each. This fell by 30% at one point, diving in early London trading to 275p.

The initial hopes of the company were for a share price of up to 460p.

The company has unfortunately been hit hard in recent weeks. A number of high profile fund managers have said they would not buy shares. This has caused Deliveroo shares to drop.

Deliveroo claimed it had opted for the lower price because of the “volatile” market conditions. The company are yet to make a profit.

Investors were deterred for a number of reasons, including the working conditions of its riders. A lack of investor power over the direction of the company was also a big issue.

These investors included Aberdeen Standard, BMO Global, charity fund manager CCLA, M&G, Legal and General Investment Management and Aviva Investors. These are some of the UK’s biggest investment fund managers.

Founder of the company, Will Shu, would have shares that gave him 20 times more voting power than other investors. This was another reason they didn’t want to invest in the business.

‘Tech Success’

During the pandemic there has been a boom in people ordering from restaurants for delivery of food to their home. This has led to an increase in demand for Deliveroo’s self-employed drivers.

Deliveroo is one of the UK’s biggest flotations since Glencore’s in May 2011. The planned share sale had attracted a lot of much attention because of this. It was also due to being the biggest technology platform float on the London Stock Exchange.

In March, Chancellor Rishi Sunak hailed the Amazon-backed company as a “true British tech success story”. He believed it had potential to clear the way for more initial public offerings by rapidly growing technology firms.

The wider investment community assesses the value of a company by share flotation.

Deliveroo had initially hoped to see a value as high as £8.8bn. This was based on a share price of 390-460p. It was scaled back to £7.6bn, but the drop in share price took £2.28bn off that.

Chief executive Will Shu said he was very proud that Deliveroo was going public in London, as it was home. As they neared a milestone, he wanted to thank everyone involved in helping to make the company what it is today. Particular thanks went to the restaurants and grocers, riders and customers.

Intentions for the next phase of the journey as a public company were to continue investing. With plans to invest in innovations that help restaurants and grocers to grow their businesses. He also hoped to bring customers more choice and provide riders with more work.

‘Plain Mis-Priced’

Equity analyst at Hargreaves Lansdown, Sophie Lund-Yates, said the biggest concern for investors was worker rights. Deliveroo has a flexible employee model for their riders, which is a huge part of the group’s plans for success.

Deliveroo’s already small margins could struggle if the company is forced to offer more traditional employee benefits, eg. company pension contributions. It would be a tough road to making any profit.

The business was difficult to value as it had not yet turned a profit.

According to chief market analyst for Markets.com, Neil Wilson, Deliveroo was asking for too high a price tag considering it was a loss making delivery platform. This was even despite pricing the initial public offering at the lower end of the range. The company is in a very competitive market, and there are doubts over its profitability.

The conclusion is that the company was just “plain mis-priced.”

Russ Mould, investment director at AJ Bell, said the backlash by fund managers probably scared lots of people who applied for shares in the initial public offering. This means they are now in a hurry to get rid of them.

Institutional investors were given the initial public offering. Deliveroo customers were also able to register their interest.

Currently, share trading is conditional, so it is possible to cancel the initial public offering. This is expected to change on 7 April, when trading will become unconditional.

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