This article was written in English on 09.04.2021, translated and published on this site.
Delicious Returns Not Delivered Yet
Deliveroo, which was founded in London in 2013 and became a very popular brand in the UK, held its first public offering on 31 March. The excitement until the first trading day was quite impressive. After all, package orders have become the most common option for epidemic restrictions.
“CMA ultimately decided that an investment of this level would not seriously reduce competition in either market. If Amazon gains greater control over Deliveroo — for example, through the acquisition of a majority stake — CMA could initiate a more detailed investigation.”
Deliveroo made the headlines with the initial public offering, but for the wrong reasons. The first expectation of the company shares is 390 – 460 p. at the base of the range, 390 p. (about $ 5.35). However, the shares will drop March 31st at 287 p. closed at level. The share is currently 282 p. ($ 4.15 for US-based stocks).
The market value is currently at £ 5.2 billion ($ 7.2 billion). In early 2021, the launch of Deliveroo was viewed as one of London’s potentially largest initial public offerings. However, there was one of the worst initial public offerings in recent history.
Pricing and Corporate Governance Concerns
In the past 10 days, analysts have been arguing why this initial public offering, where high expectations were set, was not well received. Many analysts point to valuation levels as the main issue. Even though Deliveroo priced the shares at the base of the target range, this level was still much higher than what investors wanted. As the UK prepares to lift restrictions and allow non-essential businesses to reopen, food order volumes may decline.
Despite the growth in the online ordering market during the epidemic period, the group has not yet managed to make a profit in this competitive segment. In fact, until Amazon’s investment was confirmed, Deliveroo claimed to the CMA that it could potentially fail without Amazon’s support. The fundamentals of the loss-generating delivery platform have failed to impress many of the fund managers.
With this legal defeat of one of the biggest names in the industry, the question arose whether Deliveroo too would have to improve the salaries and working conditions of delivery drivers. Although management says this decision did not affect them, some investors seem to think differently. If Deliveroo’s costs rise for this reason, the time it takes for the company to become profitable may get longer.
Finally, we should also talk to investors about the binary stock structure. This regulation offers investors with a certain class of shares more voting rights compared to other class shareholders. This type of dual structure often increases the strength of the company’s founders. After the initial public offering, Will Shu, founder of Deliveroo, owns 6.3% of the company, but holds 57.5% of the vote. While this is a common regulation in the US, it’s not quite like it in the UK. As a result, Deliveroo failed to meet the requirements for inclusion in the FTSE 100 Index.
London hopes to make itself the technology and innovation capital of Europe, thereby attracting high growth companies to the UK instead of the US.
Deliveroo as a public company is still on the way. Investors may be ready to rely on ROO shares once management has established a clear path to profitability and a better approach to existing problems.
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