Deliveroo: Will It Deliver A Delicious Return In 2021?

This article was written in English on 09.04.2021, translated and published on this site.

In the past quarters, many companies went public in the US. Airbnb (NASDAQ:), Asana (NYSE:), By Dash (NYSE:), Jfrog (NASDAQ:) ve Snowflake Many names such as (NYSE 🙂 have taken the traditional initial public offering (IPO) route.
However, others had reverse mergers with special purpose purchasing companies (SPAC). Among those who chose this path Arrival (NASDAQ:), ChargePoint (NYSE:), DraftKings (NASDAQ:), Immunovant (NASDAQ:), Plby Group (NASDAQ:), Repay Holdings (NASDAQ:) ve Virgin Galactic There were names like (NYSE :). On the other hand, Palantir Technologies (NYSE 🙂 preferred the direct listing (DPO) option.
However, 2021 is going to be a year full of first public offerings, especially in the UK. Today we’ll look at a company that had its first IPO earlier this year: an online food delivery company. Deliveroo (LON:).

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.

With about 25 million users, according to the latest benchmarks, “The UK is responsible for close to 40% of Europe’s total package service revenue.” For example, with a member Just Eat Takeaway (LON 🙂 (OTC 🙂 recorded a very high revenue growth during the epidemic period. JETJ shares have gained over 16% in the past 12 months.
In August 2020, the British Competition and Markets Authority (CMA) approved 16% ownership of Amazon (NASDAQ 🙂 over Deliveroo, and this development significantly increased the excitement surrounding the company’s initial public offering. He used the following statement in the analysis of the institution:

“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).

ROO 15 Minute Chart

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.

Prior to this, in 2011 the commodity group Glencore (LON 🙂 (OTC 🙂 was considered to be the biggest initial public offering, which was ultimately disappointing. At that time, Glencore was subject to a lot of controversy, especially on environmental, social and governance (ESP) issues. Shares were also priced at the lower limit of the target. The GLEN share never reached its initial public offering price of 530p, 80p. It saw lows below and is now 290p. trading around. Deliveroo certainly hopes ROO shares will not suffer the same fate.

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.

The other issue is corporate governance, or the working conditions of the drivers. In February, the UK Constitutional Court working in the country Uber (NYSE 🙂 decided that their drivers were workers, not independent contract workers.

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.

Result

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.

Note: If you are interested in the aforementioned financial products but cannot find these products in your area, you may want to contact your brokerage firm or financial planner.

You can contact me for any questions or comments.

Editor’s Note: Not all assets analyzed may not be available in all regional markets. Please contact an authorized brokerage firm or financial advisor to find similar financial instruments that may suit you. This content is for informational purposes only. Before making any investment decision, you should do your own detailed research.

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