A Deliveroo courier runs along Regent Street, delivering takeaway food in central London under Covid-19 Tier 4 restrictions.
Pietro Recchia | SOPA images | LightRocket via Getty Images
LONDON – Shares of Amazon-backed food delivery company Deliveroo rose about 3% Wednesday morning as retail investors began trading in the company̵
The company’s share price jumped from £ 2.80 ($ 3.86) to £ 2.91 in early trading on the London Stock Exchange before falling again to £ 2.85.
Approx. 70,000 Deliveroo customers bought between £ 250 and £ 1,000 in Deliveroo shares at the issue price of £ 3.90 before the initial listing last Wednesday. In total, Deliveroo sold shares worth £ 50 million to retail investors through a platform called PrimaryBid.
However, due to conditional trade restrictions, these loyal customers were locked in their positions until Wednesday this week. As a result, they have had to sit back and watch Deliveroo’s stock price crash of around 30%, with the biggest drop occurring on the morning of the company’s market debut.
Some retail investors told CNBC last Thursday that they had lost hundreds of pounds in the IPO and that they regretted their investments.
“I wish they had let the conditional week happen to settle the price and then place our shares when we could actually trade them,” an investor told CNBC.
Another said they planned to keep their shares for the time being and hope they rise in price in a few months. “Not much you can do with them at this price,” they said.
Susannah Streeter, senior investment and market analyst at stock trading platform Hargreaves Lansdown, said in a note Wednesday that Deliveroo’s stock price is being driven up by new retail investors.
“This will be some consolation to Deliveroo customers who were encouraged to buy a piece of the business but who seemed to have rolled the dice on a disastrous debut,” she said. “Like a fateful round of monopoly, they were locked out of selling their shares for a week, while the company’s initial valuation fell sharply.”
“Now they finally have a ‘get out of jail’ card, but it looks like now that many have kept it in their back pocket waiting for prices to stabilize,” Streeter added. “Total trading volumes are largely unchanged from yesterday.”
Streeter noted that IPOs should “offer a far more equal terms from day one for all classes of investors.”
While the IPO helped Deliveroo raise $ 1.5 billion, it has fallen as one of the worst ever on the London Stock Exchange for a large company. At one point, Deliveroo was aiming for a market value of £ 8.8bn, but the company is currently valued at just £ 5.2bn.
What went wrong for Deliveroo?
In the days leading up to the IPO, several major investment firms said they had no plans to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G – which together have approx. £ 2.5 trillion in assets under management – all avoided Deliveroo’s debut.
They cited concerns about: the valuation; employment status of Deliveroos 100,000 plus riders (several of whom plan to strike in London on Wednesday) and the dual-class stock structure that gives CEO Will Shu more than 50% of the voting rights.
Early investors told CNBC that Deliveroo’s bankers got the pricing incorrectly on the IPO, much of which was Goldman Sachs’ fault. Goldman, for his part, has not accepted that it got anything wrong.
“Pricing an IPO is a really tough exercise,” Fred Destin, a venture capitalist who early supported Deliveroo, told CNBC. “Bankers are being accused of leaving money on the table if the price is too low because there is usually a decent secondary part.”
He added: “Bankers are trying to strike the right note between letting up for new investors and not leaving too much on the table for sellers. That’s what bookkeeping is for. It’s art more than science, as the spirit of the times means a lot to us. have just seen with ROO. “
Streeter said more accurate pricing is critical to maintaining retail investors’ enthusiasm for future IPOs.
The offer of £ 3.90 per share gave Deliveroo a valuation of around £ 7.6bn, well above the valuation of around £ 5bn in January following an investment round, yet there had been no fundamental improvements to its prospects, “she said. “Instead, the flow came at a time of growing concern about its gig economics model and the expectation that easing Covid restrictions could lead to an initial downturn in the business.”
In an attempt to promote Deliveroo’s IPO, Goldman bought Deliveroo shares worth £ 75 million for himself, according to a report by The Financial Times on Tuesday, citing sources familiar with the matter.
Goldman declined to comment when contacted by CNBC.