Industry watchers have raised questions about Deliveroo’s pricing strategy, after the company’s shares plummeted upon their market debut last week.

The company’s IPO was London’s biggest in a decade, but it had attracted criticism from institutional investors over its dual-class share structure, labour practices and other issues.

The company’s shares sank 26 percent on their first day of trading on Wednesday, wiping £2 billion off the company’s initial market capitalisation.

They then lost another 1.9 percent on Thursday and a further 1.9 percent on Friday.

Pricing strategy

The debacle has raised questions about the pricing strategy of lead bankers Goldman Sachs and JP Morgan, who declined to comment.

Russ Mould, investment director at stockbroker AJ Bell, was one of many who pointed out that Deliveroo’s valuation soared from £3bn in November to over £8bn in March.

Bankers were apparently influenced by DoorDash’s New York IPO in December, when it soared 86 percent to $190 (£137) from its initial offer price of $102, Mould said.

However, DoorDash has also slumped 24 percent this month and is now trading at around $133.

Shu, himself a former investment banker, declined to hire an financial adviser to provide independent feedback, the Financial Times noted.

Market flop

The resulting IPO was London’s worst in at least two decades, according to data from Dealogic.

Finance minister Rishi Sunak, who had earlier called Deliveroo a “true British tech success story”, was obliged to defend the company’s stock market performance on Wednesday in an interview with ITV.

“Share prices go up, share prices go down… It’s important businesses like that feel that they can stay in the UK to raise capital,” Sunak said.

Such remarks are likely to be of little consolation to the 70,000 retail investors who bought £50m in Deliveroo’s shares, and are now facing steep paper losses.

Critics noted before the IPO that in spite of record sales due to the pandemic, the company remains loss-making.

The company faces stiff competition from the likes of Uber Eats and Just Eat Takeaway, as well as an uncertain regulatory environment.

Criticism

The UK Supreme Court ruled earlier this year that Uber must reclassify its ride-share drivers as employees, and the company made the change in March, just two weeks before Deliveroo’s IPO.

If food-delivery companies are also obliged to reclassify their riders as employees it would further squeeze already-tight profit margins, critics pointed out.

“We find it very difficult to understand how we can value a company that has yet to turn a profit and yet where the forward looking perspective for the business opportunity is quite so uncertain,” said James Bevan, chief investment officer at CCLA, an asset manager for charities and religious organisations, in a video commentary ahead of the flotation.

Matthew Broersma

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

Recent Posts

Sphere Chat App Acquired By Twitter

Second startup purchase by a big name tech firm for young British entrepreneur Nick D'Aloisio,…

16 hours ago

Boeing Delays Starliner Launch Until 2022

Glitch with vehicle's propulsion system discovered in August still to be resolved, and crucial uncrewed…

19 hours ago

Oversight Board: Facebook ‘Not Forthcoming’ On VIP Cross-check System

Facebook’s own oversight board has slammed the platform for withholding relevant information about its VIP…

20 hours ago

Samsung Barred From Importing Smartphones Into Russia

Russian court bans Samsung Electronics from importing and selling 61 models of smartphones in Russia…

21 hours ago

Vodafone To Hire 7,000 In Digital Services Push

British mobile giant Vodafone to hire thousands of software engineers to assist in its digital…

23 hours ago

Donald Trump To Launch ‘TRUTH Social’ Media Platform

Third time the charm? After indefinite ban on Twitter, and closure of short-lived website, Donald…

1 day ago