Deliveroo's share price falls on stock market debut

31 March 2021 by
Deliveroo's share price falls on stock market debut

Deliveroo's share price plummeted on its stock market debut this morning, wiping more than £2b off the company's valuation.

Shares in the food delivery company had been offered to investors at 390p but fell 30% to 271p when it began conditional trading on the London Stock Exchange for the first time. Shares later recovered to trade at around 299p.

Deliveroo had initially hoped for a share price of up to 460p but narrowed this to between 390p and 410p on Monday, blaming "volatile market conditions".

A number of high-profile investors have raised concerns about the company's gig-economy model. Last week the Bureau of Investigative Journalism reported that many of its drivers were paid less than the minimum wage. Deliveroo disputed the claims and said riders earned an average of £13 per hour.

There were also concerns over plans to let Deliveroo's founder and chief executive Will Shu have more than 50% shareholder voting rights.

Sophie Lund-Yates, equity analyst at Hargreaves Landsdowne, said possible tighter regulation of the firm's gig economy model had spooked investors.

She said: "Deliveroo's price isn't quite as tasty as it was hoping for, coming in at the lowest end of an already narrowed range.

"The biggest concern is regulation around worker rights. 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. Throw in the recent developments at Uber, and general market volatility, and the net effect is one of increased anxiety."

Deliveroo's losses widened from £257m to £320m in 2019 but the company said a rise in demand for delivery services during the pandemic meant it was profitable at an operating level for more than six months in 2020.

However, analysts questioned whether this could translate to long-term growth.

"The pandemic has offered a structural growth opportunity, but it's worth asking if lockdown means things are as good as they will ever be for a takeaway service," said Lund-Yates.

"The long-term outlook depends on how demand holds up in a post-pandemic world, and if that road to profitability looks any clearer."

Image: Shutterstock

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