Deliveroo
- Deliveroo shares tumbled 30% at its market debut by opening well below the price of its IPO.
- The firm's shares fell to as much as 271 pence per share, below its offering price of 390 pence.
- Deliveroo began trading on the London Stock Exchange on Wednesday under the ticker "ROO."
- See more stories on Insider's business page.
Deliveroo fell as much as 30% in the food delivery-startup's public trading debut on Wednesday, marking a downbeat start to the biggest initial public offering in London in a decade.
The company's shares were trading at an intraday low of 271 pence ($3.78) per share, according to the Financial Times, citing data from Refinitiv, lower than the offering price of 390 pence ($5.35).
The UK-based company had priced 384.6 million shares at 390 pence per share, the bottom of its marketed range between 390 pence and 410 pence ($5.65), giving the company a valuation of 7.6 billion pounds ($10.5 billion).
Amazon-backed Deliveroo, which trades on the London Stock Exchange under the ticker symbol ROO, raised 1.5 billion pounds ($2.1 billion) via proceeds from investors.
It could have raised 1.77 billion pounds ($2.4 billion) had the company priced its shares at the higher end of its IPO range. But its offering was priced at the lower end because of a drop in shares for food-service firms such as JustEat and Delivery Hero on Monday, the Wall Street Journal reported, citing a spokesperson.
The company approached its market debut uniquely compared to other IPOs. Only institutional investors are able to participate in Deliveroo's market debut on March 31, but private investors buying into its 50 million pounds ($68.6 billion) community offer can participate once unconditional trading begins on April 7.
Deliveroo was founded in 2013 by former banker Will Shu and his childhood friend Greg Orlowski. The British firm offers food, groceries, and alcohol for delivery on demand via an app, and ferries goods out to consumers through a network of gig-economy riders.
Its IPO will be a test for the UK tech startup industry, where valuations for unprofitable, high-growth companies have become increasingly bullish, even as public investor appetite for riskier businesses remains largely untested.
The company faces stiff competition in the sector from direct rivals Uber Eats and Just Eat, plus niche grocery delivery apps such as Gorillas, Getir, and Weezy.
Deliveroo primarily makes money by charging its restaurant and grocery partners a commission on each order, up to 35% in some cases. Though hoping to permanently benefit from an uplift in takeaway orders during the pandemic, the firm remains loss-making.
The firm reported a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.
Other revenue streams include its subscription programme for regular consumers who want lower delivery fees; food procurement deals; licensing out its "Editions" dark kitchens to restaurant brands; and its "Signature" marketing platform.
Its listing is also closely watched thanks to its dual-class share structure, which sees Shu retain control over the firm in a model similar to US listings. The CEO will be granted 20 votes per share, while other shareholders will receive one vote per share.
The IPO is set to make Shu a wealthy man, since he plans to sell approximately $36 million in shares, leaving him with a stake in the company worth around $662 million.
While Deliveroo has indicated that demand from institutional investors exceeded supply in the run-up to its IPO, a number of big firms publicly stated they would not back the company.
Aviva, Rathbones, Legal & General, and others variously cited Deliveroo's lack of profitability, and the reputational and financial risk posed by the fact its riders are gig-economy contractors rather than workers entitled to a minimum wage.
That comes after the Supreme Court ruled in February that ride-hailing giant Uber needed to reclassify its drivers, also deemed contractors, as workers and pay them holiday pay and a minimum wage.
The IWGB, a British union representing gig economy workers, said it was organizing a strike of Deliveroo riders on April 7, when unconditional trading begins.
Goldman Sachs and JPMorgan are joint global coordinators on Deliveroo's IPO, while Bank of America, Citigroup, Jefferies, and Numis Securities are join bookrunners.
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