Deliveroo’s IPO was expected to value at up to £8.8 billion. The Company’s revenue rocketed by 64% in 2020 from 2019 due to the pandemic and lockdown restrictions, which saw a soar in online delivery services.
However, following its flotation, shares slumped by a whooping 30%. Shares have now recovered slightly, but there is no doubt its initial valuation was overvalued.
What is an IPO?
An initial public offering (IPO) is the process of offering shares of a private company to the public for the first time in a new stock issuance via the primary market. It is through this process that a private company transforms into a public company (PLC). The shares are then listed on the secondary market where they are traded by investors.
Why was the IPO a disaster?
- Many major investors such as CCLA, Aberdeen Standard, BMO Global Asset Management and Aviva Investors publicly announced that they would not be investing in the company.
- Investors have concerns with Deliveroo’s use of ‘gig workers’ following a recent Supreme Court ruling which held Uber delivery drivers were to be classified as ‘workers’ and not ‘self-employed’ for the purposes of employment law. Reclassifying its workers will be costly for Deliveroo.
- The Founder of Deliveroo, Will Shu retains a 50% majority voting rights which is likely to have put some investors off.
What makes Deliveroo different to its competitors and can they recover?
Many of Deliveroo’s competitors offer take-away options, however Deliveroo are scaling up on higher-end restaurants and plan to increase their geographical locations. They additionally plan to tap into delivery services for online groceries.
It is being said that Deliveroo are at their peak with lockdown restrictions in place and once the restrictions lift, demand will slump. This may be questionable, since working from home is likely to largely remain in place for many companies, with flexible working arrangements being welcomed by employees and employers.
What are Gig Workers?
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Prior to IPO – What are the facts?
Deliveroo is aiming to fundraise £1 billion from the stock market flotation. The company plans to sell new and existing shares from its investors in order to form an IPO following the government’s announcement to allow founders to remain in control of their companies despite selling shares on the stock market.
Deliveroo was set up in 2013 by investment banker, Will Shu and now works alongside over 140,000 restaurants and 110,000 riders around the world. Shu’s stake in his business is 6.8%, expected to be valued at around £340 million. The IPO is expected to value at up to £8.8 billion.
In 2019, Deliveroo was making a loss of £300 million and significantly suffered when all restaurants closed in the first lockdown, but were fortunately saved by their major investors, Amazon. Since, fast food and takeaway sales have risen by almost 9% since the coronavirus pandemic and the December profits alone were greater than 6 months of operating level.
This IPO is expected to be the greatest in London, exceeding the £5.4 million of Hut Group. Deliveroo hopes that the company will grow in value to 30-40%.
What is the future for Deliveroo? Not only is the company inviting customers to hold shares but it also plans to expand to 100 new towns and cities in the UK and grow into the on-demand grocery business.
Jargon Buster Glossary
IPO (Initial Public Offering) – where a private company goes public by selling its stocks to the public.
Shares – a small part of a company’s stock.
Stock Market Rotation – a period when a stock market sector previously struggling, starts outperforming and becoming the market leader.
By Sibel Vurdu, QMUL and Karla Elliott, London South Bank University
All BeComAware content is reviewed and approved by a professional in industry.
SOURCES: https://economictimes.indiatimes.com/definition/ipo https://www.forbes.com/sites/chriscarosa/2020/11/16/this-is-why-you-should-know-about-market-rotation-right-now/?sh=38b2e72354c4 https://www.ii.co.uk/analysis-commentary/deliveroo-ipo-everything-you-need-know-ii515257 https://www.theguardian.com/business/2020/mar/10/delivery-and-digital-services-thrive-on-coronavirus-outbreak https://www.theguardian.com/business/2021/mar/15/deliveroo-aims-to-raise-1bn-from-london-stock-market-flotation