Deliveroo’s IPO Flopped But is Now the Time to Buy?

Nigel Frith

Food delivery service Deliveroo was until Tuesday hailed as a great British tech-story. Following the sale of shares to the public on Wednesday, it is now grabbing headlines for all the wrong reasons. The largest IPO on the London Stock Exchange suffered an immediate 30% price crash as investors baulked at the initial valuation price.

Source: Twitter

The Retail Investors

This is bad news for those who signed up to take shares at the launch price, many of them retail investors who were invited to take part in the float using the firm’s food delivery App. A situation made worse by the T&Cs on their deal that stops them from selling out of the position until the 7th of April. For them, the takeaway turned up cold and unappetising and will be stinking out the bin for another week.

The Banks

JP Morgan and Goldman Sachs led the float and pocketed millions in fees for apparently massively mispricing the stock. They managed to drum up enough buyers to leave the float over-prescribed at launch, but with few details of who the holders are, the banks themselves may have substantial positions on their books. Not a good look in the same week that the Archagos debacle saw some investment bank shares down more than 10%.

The Founder

Will Shu, Deliveroo’s founder, saw the value of his holding tumble from £449m to ‘only’ £334m.

The Hedgies

More bad news for early-bird buyers of Deliveroo shares came when it was reported that hedge fund managers had already sourced stock-borrow positions in the shares. They’ve begun shorting the stock and can generate more downward momentum.

If professional experts at Goldman Sachs and JP Morgan can get the valuation so wrong, what hope is there for retail investors? One factor to bear in mind is that none of the negative price influences is new. There were no skeletons found in the closet. For those considering buying in at these low levels, it’s a case of weighing up well-known pros and cons.

The Cons

  • Fundamentals – Deliveroo is haemorrhaging money and didn’t even have a good pandemic, with revenue growth failing to take off in the same way it did for other firms. Reforms of ‘gig economy’ labour practises could scupper the firm’s access to cheap labour.
  • End of lockdown – the firm didn’t benefit as expected from the Covid lockdown, and it could suffer from a return to more traditional eating habits. Netflix and Amazon Prime both developed their customer base in 2020 and being subscription services will find many remain with them through natural consumer inertia. Deliveroo, on the other hand, relies on impulse buying.
  • Reputational risk & competition – Leaving your loyal customers on the hook with a 30% loss is bad enough, but with Uber Eats and Just Eat providing similar services, the stock market flop could have repercussions for the core business.

Source: Twitter

Source: IG

The Pros

  • Tech sell-off – Timing is everything for IPOs. Deliveroo came to the market just as high-profile tech stocks around the world took massive haircuts. Music streaming service Tencent Music has lost more than 35% of its value in the space of one week.
  • Ocado – There are precedents for high-profile launches flopping and then recovering. Deliveroo might not necessarily enjoy the same rebound as online retailer Ocado, but nothing can be dismissed.

Source: IG

 

If you want to know more about this topic, or have been scammed by a fraudulent broker, please contact us at [email protected]


Nigel Frith

Latest news

Is It Time to Test the Crypto Waters Once Again as Bitcoin Rises?
Bitcoin, the most popular cryptocurrency across the planet, has surged dramatically during mid-July, reversing its downward trend and powering past $41,000. Read more
Be Wary of Phony Lawyers Pushing Fraudulent Forex Recovery Scams
Have you ever lost money because of a crooked forex broker? Have you regretted those losses until a nice lawyer called you on the phone and promised the recovery of your losses for no upfront fees? Hope does spring eternal in these situations, but, unfortunately, the lawyer is a phony. Read more

Safest Forest Brokers 2020

Broker Info Best In Customer Satisfaction Score
#1 ForexTime LogoYour capital is at risk Founded: 2011 Global CFD & FX Broker
Number One Broker
BEST FOREX BROKER Visit broker
5
#2 ForexTB logoYour capital is at risk Founded: 2015 Global Forex & CFD Broker
Number One Broker
LOWEST FEES Visit broker
4.9
#3 Tickmill forex broker logoYour capital is at risk Founded: 2014 Global Forex & CFD Broker
Number One Broker
Best Trading Conditions Visit broker
4.9
#4 BlackBull MarketsYour capital is at risk Founded: 2014 Global Forex Broker
Number One Broker
BEST SPREADS Visit broker
4.8
#5 Forex Broker Pepperstone LogoCFDs and FX are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Founded: 2010 Global Forex Broker
Number One Broker
Low minimum deposit Visit broker
4.9

    Forex Fraud Certified Brokers

    Exness Small Logo
    BlackBull Markets Logo
    FXTM Logo
    City Index Logo
    IC Markets Logo
    Vantage FX logo
    Pepperstone
    Forex.com Logo
    OctaFX Logo
    ATFX Logo
    Plus500 Small Logo
    HYCM Logo
    IQ Option Logo
    skilling logo
    XM Logo
    AvaTrade logo