During the Covid-19 Tier 4 restrictions, a Deliveroo courier delivered takeaway food along Regent Street in central London.
Pietro Recchia | SOPA Images | LightRocket via Getty Images
LONDON — The shares of Amazon-backed food delivery company Deliveroo rose by about 3% on Wednesday morning as retail investors started trading the company’s shares for the first time.
In early trading on the London Stock Exchange, the company̵
Prior to the initial offering last Wednesday, approximately 70,000 Deliveroo customers purchased Deliveroo shares between £250 and £1,000 at an issue price of £3.90. Through a platform called PrimaryBid, Deliveroo sold a total of 50 million pounds worth of stock to retail investors.
However, due to conditional trading restrictions, these loyal customers are locked in their positions until this Wednesday. As a result, they had to sit down and watch Deliveroo’s stock price plummet by about 30%, with the biggest drop occurring on the morning of the company’s first day of listing.
Last Thursday, some retail investors told CNBC that they had lost hundreds of pounds in the IPO and regretted their investment.
An investor told CNBC: “I want them to make a conditional week happen at the settlement price, and then place our shares when we can actually trade them.”
Another said that they plan to keep their stocks temporarily and hope that their prices will increase in the coming months. They said: “At this price, you can do very little with them.”
Susannah Streeter, senior investment and market analyst at the stock trading platform Hargreaves Lansdown, said in a report on Wednesday that Deliveroo’s stock price is being driven by new retail investors.
She said: “This is a comfort to Deliveroo customers, they were encouraged to buy part of the company but seemed to roll the dice in a disastrous debut,” she said. “Like a deadly monopoly incident, they were banned from selling stocks for a week, and the company’s initial valuation fell sharply.”
“Now they finally have a’get out of prison’ card, but now it seems that many people put it in their pockets and wait for the price to stabilize,” Streeter added. “The total market transaction volume has hardly changed from yesterday.”
Streeter pointed out that IPOs should “provide a higher level of competition for all types of investors from the beginning.”
Although the IPO helped Deliveroo raise $1.5 billion, it has become one of the worst large companies in the history of the London Stock Exchange. Once Deliveroo’s goal was a market value of 8.8 billion pounds, but the company’s current market value was only 5.2 billion pounds.
What’s wrong with Deliveroo?
In the days before the IPO, several large investment companies stated that they had no plans to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G-which collectively manage approximately £2.5 trillion in assets-have all avoided Deliveroo’s debut.
They cited the following concerns: valuation; the employment status of Deliveroo’s 100,000+ riders (several of whom plan to strike in London on Wednesday); and the dual-shareholding structure allows CEO Will Shu to have more than 50% of the voting rights.
Early investors told CNBC that Deliveroo’s bankers mispriced the IPO, and most of the blame was placed on Goldman Sachs. As far as Goldman Sachs is concerned, it has not accepted that it has done anything wrong.
Fred Destin, an early venture capitalist who supported Deliveroo, told CNBC: “It is very difficult to price an IPO.” “Because the price is too low, bankers are accused of leaving money on the table because there is usually a nice sub-part.”
He added: “Bankers are trying to make the right note in the process of leaving room for new investors without leaving too much room for sellers. This is the purpose of bookkeeping activities. This is art, not science, because The spirit of the times is very important, as we just saw in ROO.”
Streeter said that more accurate pricing is critical to maintaining retail investors’ enthusiasm for future IPOs.
She said: “The issue price is 3.90 pounds per share, making Deliveroo’s valuation of about 7.6 billion pounds, which is much higher than the estimated value of about 5 billion pounds in January after the investment round, but its prospects have not fundamentally improved.” “Instead, the listing comes at a time when concerns about its gig economic model are growing, and expectations that relaxation of Covid restrictions may lead to an initial decline in business.”
According to reports by the British “Financial Times” on Tuesday citing people familiar with the matter, in order to support Deliveroo’s IPO, Goldman Sachs bought for itself Deliveroo shares worth 75 million pounds.
When CNBC contacted Goldman Sachs, he declined to comment.