A Deliveroo messenger travels down Regent Street handing out takeaway food to central London during Covid-19 level 4 restrictions.
Pietro Recchia | SOUP Pictures | LightRocket using Getty Images
LONDON – Shares of Amazon-backed food delivery company Deliveroo rose about 3% on Wednesday morning when retail investors began trading the company’s shares for the first time.
The company’s share price rose from £ 2.80 ($ 3.86) to £ 2.91 in early trading on the London Stock Exchange, before falling back to £ 2.85.
Some 70,000 Deliveroo customers bought between £ 250 and £ 1,000 of Deliveroo shares at the issue price of £ 3.90 ahead of their initial listing last Wednesday. In total, Deliveroo sold shares worth £ 50 million to retail investors through a platform called PrimaryBid.
However, due to conditional trade restrictions, these loyal customers were locked in their positions until Wednesday this week. As a result, they have had to sit back and watch the fall in the price of Deliveroo shares around 30%, with the biggest drop taking place on the morning of the company’s market debut.
Some retail investors told CNBC last Thursday that they had lost hundreds of pounds on the IPO and regretted their investments.
“I wish they had let the conditional week pass to settle the price and then place our shares when we could change them,” an investor told CNBC.
Another said they planned to hold their shares for now and hoped to raise the price in a few months. “You can’t do much with them at that price,” they said.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown stock trading platform, said Wednesday in a note that new retail investors are raising the price of Deliveroo shares.
“This will be a bit of a convenience for Deliveroo customers who were encouraged to buy a portion of the company, but who seemed to have rolled the dice on a disastrous debut,” he said. “Like a fateful round of Monopoly, they blocked the sale of its shares for a week, while the company’s initial valuation fell sharply.”
“Now they finally have the ‘get out of jail’ card, but it looks like for now many are keeping it in their back pocket, waiting for prices to stabilize,” Streeter added. “The total trading volume of the market has remained virtually unchanged since yesterday.”
Streeter noted that IPOs should “offer much more equitable playing conditions from day one to all classes of investors.”
While the IPO helped Deliveroo raise $ 1.5 billion, it has fallen as one of the worst on the London Stock Exchange for a large company. At one point, Deliveroo intended a market capitalization of £ 8.8 billion, but the company is currently worth just £ 5.2 billion.
What went wrong with Deliveroo?
In the days leading up to the IPO, several large investment firms said they had no plans to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G, which collectively have close to £ 2.5 trillion in assets under management, shunned Deliveroo’s debut.
They cited concerns around: valuation; the employment situation of more than 100,000 Deliveroo pilots (several of whom are scheduled to strike in London on Wednesday); and the dual-class shareholding structure that grants CEO Will Shu more than 50% of the voting rights.
Early investors told CNBC that Deliveroo bankers were wrong about the price on the IPO, with much of the blame on Goldman Sachs. Goldman, meanwhile, has not admitted that he was wrong about anything.
“Price of a IPO is a very tough exercise,” Fred Destin, a venture capitalist who backed Deliveroo at first, told CNBC. “Bankers are accused of leaving money on the table if the price is too low because there is usually a decent secondary portion.”
And he added: “Bankers try to give the right grade between leaving new investors upside down and not leaving too much on the table for sellers. That’s what the book-building exercise is for. It’s more art than science, since the zeitgeist matters a lot, as we just saw with ROO “.
Streeter said more accurate pricing is key to maintaining retail investor enthusiasm for future IPOs.
“The bid, at £ 3.90 per share, gave Deliveroo a valuation of about £ 7.6 billion, well above its valuation of about £ 5 billion in January after a round investment, but there had been no fundamental improvements in their prospects, ”he said. . “Instead, the float came at a time of growing concerns about its concert economy model and the expectation that softening Covid restrictions could lead to an initial downturn in the business.”
In an attempt to bolster Deliveroo’s IPO, Goldman bought Deliveroo shares worth £ 75 million, according to a Financial Times report on Tuesday, citing sources familiar with the matter.
Goldman declined to comment when contacted by CNBC.