A Deliveroo courier drives along Regent Street delivering takeaways in central London during Covid-19 Tier 4 restrictions.
Pietro Recchia | SOPA Images | LightRocket via Getty Images
LONDON – The shares of food delivery company Deliveroo, Amazon-backed, climbed about 3% on Wednesday morning when retail investors began trading in the company’s stock for the first time.
The company’s share price rose from £ 2.80 ($ 3.86) to £ 2.91 in early trades on the London Stock Exchange before falling again to £ 2.85.
About 70,000 Deliveroo customers bought between £ 250 and £ 1,000 of Deliveroo shares at the issue price of £ 3.90 before the first listing last Wednesday. In total, Deliveroo sold £ 50 million worth of shares to retail investors through a platform called PrimaryBid.
However, due to conditional trade restrictions, these loyal customers were locked up in their positions until Wednesday this week. As a result, they had to sit back and watch Deliveroo’s share price collapse by about 30%, with the biggest drop taking place on the morning of the company’s debut in the market.
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 determine the price and then put our shares in when we could really trade it,” one investor told CNBC.
Another one said they plan to hold their shares for the time being and hope they will rise in price within a few months. “Not much you can do with them at this price,” they said.
Susannah Streeter, a senior investment and market analyst at stock trading platform Hargreaves Lansdown, said in a note on Wednesday that Deliveroo’s share price is being driven by new retail investors.
“It will provide some comfort to Deliveroo customers who have been encouraged to buy a piece of the company, but it looks like they have thrown the dice on a disastrous debut,” she said. “Like a fatal round of Monopoly, they were unable to sell their shares for a week, while the company’s initial valuation fell sharply.”
“Now they finally have a ‘out of jail’ card, but for now, it seems like many have kept it in their back pocket and waited for prices to stabilize,” Streeter added. “The total trading volume has been relatively unchanged from yesterday.”
Streeter noted that IPOs “should provide a much more equal playing field for all investor classes from day one.”
While the IPO helped Deliveroo raise $ 1.5 billion, it went down as one of the worst ever on the London Stock Exchange for a large company. At one point, Deliveroo envisioned a market capitalization of £ 8.8 billion, but the company is currently valued at just £ 5.2 billion.
What went wrong for Deliveroo?
Several major investment firms said in the days before the IPO that they did not intend to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G – which together have around £ 2.5 billion in assets under management – avoided Deliveroo’s debut.
They mention concerns about: the valuation; the service status of Deliveroo’s 100,000 riders (several of whom plan to go on strike in London on Wednesday); and the dual share structure that gives CEO Will Shu more than 50% of the voting rights.
Early investors told CNBC that Deliveroo’s bankers had the wrong price on the IPO, and Goldman Sachs blamed it a lot. Goldman, in turn, did not accept that he had done anything wrong.
“The price of an IPO is a very difficult exercise,” Fred Destin, a venture capitalist who supported Deliveroo early on, told CNBC. “Bankers are accused of leaving money on the table if the price is too low because there is usually a decent secondary portion.”
He added: “Bankers are trying to strike the right note between the bottom for new investors and not too much on the table for sellers. That’s what bookkeeping practice is for. It’s art more than science, as the spirit of the times matters a lot. , as we have just seen with ROO. ‘
According to Streeter, more accurate pricing is crucial to maintain the enthusiasm of retail investors for future stock market moves.
The offer, at £ 3.90 per share, gave Deliveroo a valuation of around £ 7.6bn, which was much higher than the valuation of around £ 5bn in January after an investment round, but there was no fundamental improvements to his prospects, “she said. . “Instead, the drive came at a time of growing concern about its gig economy model and the expectation that mitigating Covid restrictions could lead to an initial downturn in the business.”
In an effort to promote the Deliveroo listing, Goldman, according to a report by The Financial Times, bought £ 75 million Deliveroo shares for himself on Tuesday, citing sources familiar with the matter.
Goldman declined to comment when CNBC contacted him.