Deliveroo debuted on the London Stock Exchange on 31st March at 390p per share. On its opening day, the share price dropped 26%, with a further 4% by Friday 2nd April, reaching 271p per share. It was a huge blow to the company, having seen £2B wiped off its initial market capitalisation. In the same blow, London was hurt. It is attempting to position itself as an attractive city for high-growth companies seeking capital, competing with major U.S. cities like New York and Washington as well as cities who are facilitating their own expansion as tech hubs like Amsterdam.
Deliveroo is a household name, downloaded on many, many phones around the world so customers can order food to their home. It exists as a product at a time when more and more services are being brought to the home. It is of course the convenience which attracts those who want food delivery services, for those who play online casino, or who organise their finances or deal shares from their mobile – accessibility is key. But, more importantly, it is the ability to decide, the ability to have control of where, when, and how you eat. Having options, a personalised experience has become the customer demand in recent years, which the internet and digitisation has helped facilitate.
Their entrance on the market comes off the back of gaining market share and being one of the fastest growing technology companies in Europe. It was valued at roughly £8B. Their IPO was the largest London had seen in a decade and the result was the largest loss the city had seen in two decades. Some investors criticised this. The rumour is that Deliveroo’s lead bankers, Goldman Sachs and JP Morgan were inspired by DoorDash’s New York IPO performance, when the price soared 86% at the close of its opening day, causing them to overvalue the company. DoorDash quickly slumped, though, over the following months, but they are still trading above their initial price.
Another reason for the slump could be investors’ scepticism of Deliveroo’s relationship with their employees. Uber, a Deliveroo rival with their UberEats branch, has to treat it’s drivers as workers, a U.K. court ruled in March of this year. Experts suggested it could cost – due to price increases and re-strategizing for growth – $500M. This may have produced unease with investors, due to Deliveroo operating under similar gig-economy relationships with their workers: how long until Deliveroo finds itself in the law’s crosshairs?
Timing likely factored in too. 31st March is the final day of the first quarter of 2021, a day of reflection – of the quarter, of projections, and strategies – as opposed to investment. Equally, new emphasis on leisure and travel stocks has meant that growth and tech stocks are less appealing – thus Deliveroo entered into a less receptive crowd.
London, as mentioned, wants to make itself an attractive city for high-growth companies. The Deliveroo IPO performance won’t necessarily have a detrimental impact on that pursuit, but it highlights certain obstacles companies may face on the London Stock Exchange. The city is interested in changing its rules to appeal to new companies, despite the U.K.’s corporate governance being considered one of the better in the world. The mayoral election might, also, have an impact. One issue which is causing some strife for companies and for those involved in governance is dual-class share structure.
Dual-class share structures are common for companies on American stock exchanges. It was and continues to be an inhibitor for Deliveroo. What this share structure means is that one group of shareholders has a disproportionate share of voting rights within the company. It essentially seeks to allow founders to maintain their control of the company – its vision and practices. It’s an individualistic way for companies to operate. Facebook and Apple are other examples. Founders often hold the narrative for their companies, as much as their products and services. For Deliveroo, the chief executive and co-founder Will Shu has a 57% share of the voting rights. U.K. investors are wary of this type of structure. Minority shareholders don’t like the total lack of control. The U.K. government is willing to allow companies with dual-class share structures to list in the “premium” if the rules can be changed, hoping to add to London’s appeal.
Deliveroo exists in a busy landscape of food delivery companies. The likes of Just Eat and Uber Eats offer significant opposition in Europe, while DoorDash is added to the list in North America. It is increasing its share in Europe, but Just Eat continues to have a strong hold. Where Deliveroo is looking to make gains, though, is in grocery delivery, which looks, as things stand, to be an industry about to balloon. This move could make their shares far more appealing once the process begins to open out and turn to results.
The future for London is up in the air. This Deliveroo IPO performance shouldn’t be too indicative of the performance of other companies, but, as mentioned, it marks a clear conflict.