A Deliveroo courier travels down Regent Street to deliver takeaway food in central London during Covid-19 Tier 4 restrictions.
Pietro Recchia | SOPA images | LightRocket via Getty Images
LONDON – Shares of Amazon-backed food supplier Deliveroo were up about 3% Wednesday morning when private investors first started trading the company’s stock.
The company’s share price rose from £ 2.80 ($ 3.86) to £ 2.91 in early deals on the London Stock Exchange before falling back to £ 2.85.
About 70,000 Deliveroo customers bought between £ 250 and £ 1,000 worth of Deliveroo shares at the issue price of £ 3.90 before initial listing last Wednesday. In total Deliveroo sold £ 50 million worth of shares to retail investors through a platform called PrimaryBid.
However, due to conditional trading restrictions, these loyal clients were stuck in their positions until Wednesday this week. As a result, they had to sit back and watch Deliveroo’s stock price crash by about 30%, with the biggest drop occurring on the morning of the company’s market debut.
Some private investors told CNBC last Thursday that they had lost hundreds of pounds in the IPO and regretted their investments.
“I wish they had let the conditional week happen to settle the price and then placed our shares while we could actually trade them,” an investor told CNBC.
Another said they plan to keep their shares for the time being and hope they will rise in price in a few months. “You can’t do much with it at this price,” they said.
Susannah Streeter, a senior investment and market analyst with stock trading platform Hargreaves Lansdown, said in a note Wednesday that Deliveroo’s stock price is being pushed up by new private investors.
“This will be some consolation for Deliveroo customers who were encouraged to buy some of the business, but seemed to have rolled the dice for a disastrous debut,” she said. “As a fateful round of Monopoly, they were barred from selling their shares for a week while the company’s initial valuation plunged.”
“Now they finally have a ‘jailbreak’ card, but it seems many have kept it in their back pockets, waiting for prices to stabilize,” added Streeter. “Total trading volumes in the market are virtually unchanged from yesterday.”
Streeter noted that IPOs “should provide a much more level playing field for all types of investors from day one”.
While the IPO helped Deliveroo raise $ 1.5 billion, it has fallen as one of the worst ever on the London Stock Exchange for a major company. At one point Deliveroo was aiming for a market cap of £ 8.8 billion, but the company is currently valued at just £ 5.2 billion.
What went wrong with Deliveroo?
In the days leading up to the IPO, several major investment firms said they had no plans to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G – which collectively manage around £ 2.5 trillion in assets – all shied away from Deliveroo’s debut.
They mentioned concerns about: the appreciation; the employment status of Deliveroo’s more than 100,000 riders (some of whom plan to strike on Wednesday in London); and the dual share structure that gives CEO Will Shu more than 50% of the voting rights.
Early investors told CNBC that Deliveroo’s bankers got the IPO price wrong, with much of the debt owed to Goldman Sachs. Goldman, for his part, has not accepted that anything was wrong.
“Setting the price for an IPO is a very difficult exercise,” Fred Destin, a venture capitalist who backed Deliveroo early on, told CNBC. “Bankers are accused of leaving money on the table when the price is too low because there is usually a decent secondary portion.”
He added, “Bankers are trying to set the right tone between putting aside for new investors and not leaving too much on the table for salespeople. That’s what book making exercise is for. It’s more art than science. , because the spirit of the times matters a lot, as we just saw with ROO. “
Streeter said more accurate pricing is critical to maintaining retail investors’ enthusiasm for future IPOs.
The offering, at £ 3.90 a share, gave Deliveroo a valuation of around £ 7.6 billion, which is well above its January valuation of around £ 5 billion following a round of investment, but there were no fundamental improvements in prospects, ”she said. . “Instead, the IPO came at a time of growing concern about the gig economy model and the expectation that the easing of Covid restrictions could lead to an initial corporate downturn.”
In an effort to support Deliveroo’s IPO, Goldman bought £ 75 million worth of Deliveroo stock for himself, according to a report by The Financial Times on Tuesday, citing sources familiar with the case.
Goldman declined to comment when he reached out to CNBC.