Deliveroo sold shares worth ?1.5 billion in the IPO, of which ?1 billion will go to the company itself, and ?500 million will go to existing shareholders.
Shortly after being listed on London Stock Exchange, Deliveroo Holdings Plc (LON: ROO) stock dipped approximately 30%. Deliveroo stock began trading at 390 pence a share but dropped to as low as 275 pence a share within the first few minutes of trading. Meanwhile, Deliveroo stocks were trading around 285 pence at the time of reporting according to metrics provided by MarketWatch. Deliveroo London IPO marks a new era of public listing after Brexit. Besides, the IPO was the largest in the past few years to be listed through the London Stock Exchange.
The Amazon-backed company enters the public market at a time when the online food delivery industry continues to grow in demand fueled by the coronavirus crisis. However, the competition together with regulatory uncertainty compelled investors to dump the Deliveroo stocks on the first day.
According to a post by CNBC, around three hedge fund investors bet against Deliveroo stocks on the first day. “That path to profitability is what is potentially under threat if we see increased regulation around workers’ rights,” Hargreaves Lansdown equity analyst Sophie Lund-Yates told CNBC’s “Street Signs Europe.” “I think that is the biggest reason we have seen so much anxiety injected into the trading this morning.”
Deliveroo sold shares worth ?1.5 billion in the IPO, of which ?1 billion will go to the company itself, and ?500 million will go to existing shareholders, including Chief Executive Will Shu.
Currently, Deliveroo has a market valuation of approximately ?7.85 billion. The high maker valuation puts pressure on the company to deliver and realize profits for its shareholders amid increased competition from the likes of Just Eat Takeaway, and Uber Eats.
But a market cap of ?7.6 billion means the company’s worth 6.4 times last year’s revenue, which in some way above rival Just Eat’s 4.8 times, despite the lower price. That means there’s pressure for Deliveroo to deliver the goods, or its share price will be in the firing line,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.
Deliveroo has significantly benefited from the ongoing coronavirus pandemic besides being backed by Amazon, which is a successful e-commerce company. Notably, the Deliveroo stock listing was led by investment banks JPMorgan and Goldman Sachs, with Bank of America Merrill Lynch, Citi, Jefferies, and Numis also part of the group.
However, all is not lost for the Deliveroo stock based on historical analysis of various tech stocks after IPOs. The company is capable of rising above the dip in the near future as it continues to venture out to more global markets.
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