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FT Report on Deliveroo IPO
I know my section tends to not focus on business and finance, but I thought this week I might change it up a little. This issue is going to be a 2-part series as we talk about two examples of ‘tech platforms’ going public and how they have lost more than 50% of their value since their Initial Public Offering (IPO). Both these companies were listed sometime during the pandemic and have not performed well. Let’s begin with food courier titan Deliveroo.
Deliveroo
Deliveroo is a food delivery company that was founded in 2013. The model is similar to many food delivery services where you place an order on the app and a rider/driver will deliver the food to you. Historically, Deliveroo never really did well in terms of net profit and for some years posted losses. The start of the pandemic was a big worry as restaurants were shutting down and the threat of people’s livelihoods were imminent. However, after the initial panic wore off and restaurants were allowed to operate on delivery. Growth skyrocketed and it seemed like food delivery was going to be the future. The company went public on 31st March 2021 and lost 31% of its value in one day. Many investors were worried about whether the firm could sustain the high levels of growth once the pandemic started to wane down. Further concerns were about the working conditions of delivery staff and political pressure of introducing a minimum wage for delivery staff even though they belong to the gig economy. The rise in Deliveroo’s wage bill would mean higher prices for food and delivery and investors thought that they would have a hard time passing off the rising cost to consumers. The share price slowly recovered back to the initial offering price of around 390p per share in late 2021 but has since slumped again and hit an all time low of only 169p per share at the time of writing. This is again caused by rising wages in Europe and also legislation regarding the regulation of gig economy workers and their rights.
My opinion:
So, what happened? After all, Deliveroo is a tech savvy modern company with a great idea. Food courier services are also part and parcel of life now. You would expect it to be booming. The main problem is profitability. The business is struggling to turn its great ideas into profit. It’s just not making money. Coupled with issues regarding pay and workers rights, it further cuts into profits and also makes it very unappealing for ESG investors. Lastly, I think the hype of a major ‘tech stock’ floating on the London Stock Exchange made initial valuations way out of proportion affecting both institutional investors as well as retail investors.
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