Deliveroo loses 26% of its value in first day's trading to £5.23bn

British food delivery start-up Deliveroo listed on the London Stock Exchange with a valuation of £7.59 billion ($10.41bn) on Wednesday in the largest initial public offering in the UK capital for a decade.

The app-driven meals delivery group raised £1.5bn in the IPO, with its offering priced at £3.90 per share, the bottom of its target range. The stock sank 26 per cent in the first day's trading, wiping more than £2bn off the valuation.

Its share price closed at £2.87, valuing it at £5.23bn.

The listing has been beset with challenges after some of the UK's largest fund managers said they would not participate in the offering over concerns about how the company's delivery riders are treated.

Will Shu, the American founder and chief executive of Deliveroo, said he was “very proud” the company was going public in London, where he set the business up in 2013 and referred to as “our home”.

“In this next phase of our journey as a public company, we will continue to invest in the innovations that help restaurants and grocers to grow their businesses, to bring customers more choice than ever before and to provide riders with more work,” Mr Shu said on Wednesday.

"Our aim is to build the definitive online food company and we’re very excited about the future ahead."

Deliveroo listed on the LSE’s main market at 8am London time, selling 384.6 million shares at the offer price and raising £1bn, with shareholders including Mr Shu and Amazon, selling the remaining £500m of stocks.

The listing is London's biggest since Glencore in May 2011 and is the biggest tech IPO on the LSE, far outstripping The Hut Group, which listed for £1.88bn last September.

Because Deliveroo listed with weighted voting rights on the LSE’s standard segment, it cannot be included in indexes such as the FTSE100. The company’s shares will be traded under the ticker ROO.

Commentators dubbed the company Floperoo and Deliveroops after trading closed.Joshua Mahony, senior market analyst at online trader IG, said Deliveroo "disappointed" its new shareholders, "with sharp declines highlighting risks going forward".

"Deliveroo’s arrival on the stock market has done far more to highlight the innate risks of investing [in] fresh listings than deliver[ing] value to their 70,000 new shareholders," said Mr Mahoney.

"Sharp moves on IPO day are typically attributed to a bank either overvaluing or undervaluing a stock, and this is no exception. This listing comes at exactly the wrong time for shareholders, with rising treasury yields bringing pressure on growth/tech stocks, and valuations based on a period of massive upheaval for the restaurant business."

Earlier this week, Deliveroo said it priced its shares towards the bottom end of the range because of "volatile" market conditions, lowering its capitalisation range to between £7.6bn and £7.85bn instead of an earlier target of £7.6bn to £8.8bn.

Deliveroo’s lower valuation target follows concerns from fund managers over the sustainability of the company’s business model because it relies on gig-economy workers.

Last week, Aviva Investors, which manages £365bn of assets, said it would not invest because Deliveroo’s riders in the UK did not receive the minimum wage, sick leave or holiday pay. Other major investors to reject the flotation include Legal & General, Aberdeen Standard and BMO Global.

Some investors raised the alarm over Deliveroo's dual-class structure, which allows Mr Shu to retain control of the business for three years.

Deliveroo revealed its London listing earlier this month in a move prompted by the UK's planned overhaul of listings in a post-Brexit shake-up.

Deliveroo said earlier this month that its dual-class structure will “closely align with the recommendations set out in the review”, a boon for Britain's Finance Minister Rishi Sunak who commissioned the review to help lure tech companies to the City.

The company's decision to list followed a surge in business for the meal delivery service during the pandemic. Deliveroo said the value of its food orders in January and February was up 121 per cent on 2020, driven by soaring demand in the UK and Ireland during coronavirus lockdowns.

The volatile debut caught the attention of Mr Sunak, who stressed the listing showed the UK had a global technology offering. “Share prices go up, share prices go down,” he said. “We should celebrate success in this country.”

“You talk about Deliveroo, I think I remember Facebook when it first IPO’d - I think the share price halved over the next few months, and then obviously we all know what happened after that.”

Some of Britain’s biggest investment companies shunned Deliveroo’s listing, citing concerns about gig-economy working conditions and the dual share structure.

The listing offers a much-needed boost for London’s financial sector, which was hit hard by Britain’s exit from the European Union. It is now working hard to boost its credentials as a listing venue for tech companies that can compete with heavyweights such as New York and Hong Kong.

About $6bn in European share trading left the City for the continent on January 1 – the first business day after the transition period ended.

Deliveroo said it intends to use the funds raised to invest in continuing its growth journey and fuelling its innovation efforts.

Deliveroo has expanded into Europe, Asia, Australia and the Middle East, and last year more than six million people ordered food and drink every month from its app via 115,000 cafes, restaurants and stores.

Deliveroo will offer its riders bonuses of between £200 to £10,000 as a result of the flotation, depending on the number of deliveries they have made.