Watch: Amazon backed Deliveroo slumps in trading debut
Deliveroo's (ROO.L) share price plunged as much as 30% on its IPO debut on the London Stock Exchange on Wednesday.
Shares were priced at 390p but dropped to 331p at the open. They were trading as low as 276p shortly after. The slump knocked £2bn ($2.7bn) off the company's value.
Deliveroo's 390p offer price had valued the business at £7.6bn.
On Monday, the startup had said it cut its potential valuation, following a revolt from the City of London over the company's treatment of drivers. Several of the City of London's biggest money managers — including Aviva (AV.L), Aberdeen Standard Life (SLA.L), L&G (LGEN.L), and M&G (MNG.L) — have publicly said they will not take part in Deliveroo's IPO.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success. If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo’s already thin margins would struggle to climb, and the road to profitability would look very tough indeed."
Deliveroo said it intends to use the net proceeds from the issue of new shares to continue to invest in growth opportunities.
"Bringing the food category online represents an enormous market opportunity. The way we think about it is simple: there are 21 meal occasions in a week – breakfast, lunch, and dinner – seven days a week. Right now, less than one of those 21 transactions takes place online. We are working to change that," it said in a statement.
CEO Will Shu said: "In this next phase of our journey as a public company we will continue to invest in the innovations that help restaurants and grocers to grow their businesses, to bring customers more choice than ever before, and to provide riders with more work. Our aim is to build the definitive online food company and we're very excited about the future ahead."
"Deliveroo is yet to turn a profit, which makes it very difficult to value on a traditional basis. But a market cap of £7.6bn means the company’s worth 6.4 times last year’s revenue, which is some way above rival Just Eat’s 4.8 times, despite the lower price," said Lund-Yates.
"Deliveroo has been seriously buoyed by lockdowns, and as restrictions ease, we could see a permanent increase in demand for delivered food," she added.
Conditional trading in Deliveroo shares began at 8am in London this morning. During this time, the company can cancel the IPO and void any trades made. Unconditional trading, when the shares can then be held in an ISA or SIPP, is expected to begin on 7 April.
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