Deliveroo shares jump as trading opens to retail investors, while hundreds of riders begin protests in the UK over low pay and working conditions

Deliveroo rider
Goldman Sachs bought $103 million in Deliveroo shares to boost its stock after a disappointing IPO.

  • Deliveroo shares rose Wednesday as the company opened trading to retail investors.
  • On the same day, about 400 riders are staging protests in the UK as they call for higher pay and benefits.
  • Goldman Sachs bought $103 million in Deliveroo shares to boost its stock after a disappointing IPO.
  • See more stories on Insider’s business page.

Deliveroo shares rose 4% on Wednesday as the company opened trading to retail investors, a week after going public on the London Stock Exchange to institutional participants only.

The food-delivery group’s shares opened at 288 pence ($3.96), giving it a market value of £5.2 billion ($7.2 billion). That is down from the £7.6 billion ($10.5 billion) valuation its IPO was priced.

Further turbulence is expected for Deliveroo’s shares as about 70,000 retail investors begin trading their stock.

Separately, some 400 Deliveroo riders are staging socially-distanced strikes on the same day that it opened up trading to amateur investors.

Protests over what they describe as poor working conditions and low pay will take place in London and four other cities in the UK, according to a statement by the trade union Independent Workers’ Union of Great Britain.

The riders are revolting less than two weeks after The Bureau of Investigative Journalism revealed that some riders earn as little as £2 ($2.76) per hour for delivering food to customers, far below the minimum wage.

“I’m going on strike for my basic rights and those of all the other riders struggling to get by and support families on Deliveroo poverty pay,” Greg Howard, a Deliveroo rider and chair of the union’s couriers and logistics branch, said in a statement.

Howard said he has seen work conditions at Deliveroo decline for years. After working through the lockdown, he said he became infected with the coronavirus and got “very little support” from the company. On its site, Deliveroo says it offers a relief fund for infected riders.

Another rider, Ethan Bradley, told the Big Issue: “I don’t know if I’m going to be able to make the rent next week, or pay the bills. Many riders have family, have dependents and have kids to feed,” adding that security of earnings “would mean so much to them.”

A Deliveroo spokesperson told Insider that the “small self-appointed” union does not represent a majority of riders who tell the company they value its flexibility and an ability to earn over £13 ($17.9) an hour.

“We are proud that rider satisfaction is at an all-time high and that thousands of people are applying to be Deliveroo riders each and every week. Riders are at the heart of our business and today we are beginning a new consultation with riders about how we should invest our new £50 million community fund,” the spokesperson said in a statement.

Shares in Deliveroo tumbled by more than 30% at its stock market debut on March 31, when only institutions were allowed to participate. The Financial Times said its IPO has been dubbed “the worst in the history of the London market.”

The food-delivery group may have waited too long to capitalize on the IPO frenzy for COVID-19 stock winners.

Goldman Sachs, one of Deliveroo’s underwriters, bought shares worth £75 million ($103 million) to boost its stock after its IPO dwindled, the FT reported on Tuesday.

The result of Deliveroo’s IPO was deflating for many investors in UK tech, according to Christian Nentwich, founder of financial tech firm Duco. He told Insider that although there are lots of good arguments about whether the IPO’s pricing was rightly set over workers’ rights and future business risk, “frankly, no one cares in other companies, outcomes matter.”

“Protests about dual-control structure, about the strategy of burning cash to fuel growth, and so on, are irrelevant – companies can simply list elsewhere,” he said.

But brands are as strong as their weakest link and for Deliveroo, problematic worker practices are its biggest challenge, said Sophie Lord, executive director of strategy at brand consultant firm Landor & Fitch.

“Major investment houses are looking at ESG seriously and have made it clear, they won’t tolerate a failure to engage. Whether the brand now has the lifeforce to overcome the scrutiny, time will tell – as will its share price,” she said.

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Deliveroo’s IPO flopped this week. The UK startup may have waited too long to cash in on the IPO frenzy for COVID-19 ‘winners.’

Deliveroo rider delivery rider
A Deliveroo rider.

  • The timing of Deliveroo’s IPO may be one key reason why investors shunned its landmark offering.
  • Appetite for food-delivery companies is fizzling out now that vaccination drives are going strong.
  • Deliveroo doesn’t have the scalability of a bigger US tech company like Uber, one market analyst said.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Shares in British food-delivery startup Deliveroo tumbled as much as 30% on its first day of trading this week, even after the company priced its shares at the lower end of its IPO range.

This marked an unfavorable start for one of Europe’s biggest IPOs in a decade.

It seems like Deliveroo may have waited too long to cash in on the IPO frenzy for firms that managed to make the most of the “COVID-19 economy,” such as US peer DoorDash. The drop is linked in part to bad timing.

“Timing is everything in the IPO market,” Robert Johnson, finance professor at Creighton University’s Heider College of Business, told Insider. “While food delivery is popular in the COVID world, there is a strong likelihood that the service will have lower demand in a post-COVID world,” he said, adding that Deliveroo’s investors were looking to take advantage of its potential to benefit from the stay-at-home environment.

But that attitude appears to be changing as investors emerge from the pandemic, he said.

Separately, insurers including Aviva, Aberdeen, and Rathbones said they wouldn’t invest in Deliveroo because its riders do not get the minimum wage, sick leave, or holiday pay. That in itself made for poor promotion.

Aside from its workers-rights crisis, the poor performance of similar stocks like HelloFresh and JustEat seems to have had an effect on Deliveroo.

“The market is pricing in the impact of the successful UK vaccination campaign, which will lead to a return to restaurants later this year and this will have a negative impact on this entire business model,” said Alexander Graf, cofounder of e-commerce tech firm Spryker.

The Amazon-backed company initially saw a lot of fanfare over its IPO. But instead of a contingent of investors rushing in to drive its price higher, the stock slumped. That translates to a paper loss for those retail investors, including its customers and top drivers, who were unlucky enough to have been tempted in and paid the IPO price, said David Morrison, senior market analyst at Trade Nation. The stock may have recovered, but “this is undoubtedly a flop by anyone’s standards,” he said.

Morrison said this may not have happened to a similar company debuting in the US because UK investors perceive companies differently.

Deliveroo aims to paint itself as a tech disruptor just like Uber, he said. But to many, it’s a company with a young workforce dashing around on unlit bikes at night with boxes on their backs in the posher neighborhoods around London.

“That doesn’t seem very high-tech to me. Unlike Uber that has scalability, Deliveroo probably won’t work outside a big metropolis like London,” Morrison said. “Also, it has plenty of competition from the likes of Just Eat and Uber Eats. Finally, it doesn’t make money. While that’s also been the case for other tech companies, such as Uber and Amazon, what will Deliveroo’s future be like once lockdown ends?”

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Deliveroo’s share price tumble dents CEO Will Shu’s fortune by $144 million during opening hours of trading

Will Shu, Deliveroo CEO and Founder, inaugurates its first Deliveroo kitchen site in France, called Deliveroo Editions on July 3, 2018 in Saint-Ouen, France.
Will Shu, Deliveroo CEO and cofounder, inaugurates its first Deliveroo kitchen site in France, called Deliveroo Editions on July 3, 2018 in Saint-Ouen, France.

  • Deliveroo CEO Will Shu saw the value of his stake in the firm fall to $474 million on its stock market debut.
  • His stake was worth $618 million at the opening share price, but fell as investors shunned the IPO.
  • Shu is also thought to have sold shares worth around $36 million when the firm listed.
  • See more stories on Insider’s business page.

Deliveroo CEO Will Shu is a wealthy man after the food delivery firm he cofounded floated on the London Stock Exchange on Wednesday.

Shu, the largest individual shareholder at Deliveroo, is thought to have sold around 6.7 million shares when the market opened, at the opening price of £3.90 ($5.35), making $36 million from that transaction.

The value of his remaining 6.3% stake is not currently as high as anticipated, after shares in the firm tumbled as much as 30% on its debut.

At the time of writing, the drop has seen Shu’s stake in the firm plummet to a value of $474 million in the opening hours of trading, down $144 million from $618 million at open.

The company’s listing price range for the IPO was between 390 pence ($5.35) and 460 pence ($6.33). At the higher end of the range, Shu’s stake would have been worth as much as $729 million.

Shu’s stake will fluctuate throughout the day and its value could end up being higher or lower by market close.

Read more: Here’s the 5 things investors need to know ahead of the Deliveroo IPO

Deliveroo’s IPO gave it an opening valuation of about $10.5 billion but it shed more than $2.7 billion in market value in its first hours as a public firm under the ticker “ROO.”

The company, founded in 2013 by Shu and his friend Greg Orlowski, has faced criticism from large investors and activists in the run-up to its IPO over its business model.

Deliveroo’s app allows consumers to order grocery and food on demand, and the firm relies on a network of gig-economy riders to ferry the goods out.

At least six investment firms, including Aviva Investors, Rathbones, Legal & General, and Standard Life Aberdeen, announced they wouldn’t invest in Deliveroo. Some cited both its lack of full-year profitability, and the threat posed to future profitability by its ongoing reliance on gig-economy riders.

“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said AJ Bell investment director Russ Mould on Wednesday. “It had better get used to the nickname ‘Flopperoo’.”

Read the original article on Business Insider

Deliveroo slumps 30% at its London trading debut after pricing shares well below the lower end of IPO range

Deliveroo CEO Will Shu
Deliveroo CEO, Will Shu.

  • Deliveroo shares tumbled 30% at its market debut by opening well below the price of its IPO.
  • The firm’s shares fell to as much as 271 pence per share, below its offering price of 390 pence.
  • Deliveroo began trading on the London Stock Exchange on Wednesday under the ticker “ROO.”
  • See more stories on Insider’s business page.

Deliveroo fell as much as 30% in the food delivery-startup’s public trading debut on Wednesday, marking a downbeat start to the biggest initial public offering in London in a decade.

The company’s shares were trading at an intraday low of 271 pence ($3.78) per share, lower than the offering price of 390 pence ($5.35). The price recovered to 313 pence ($4.31) at 8:45 a.m. London time.

“Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face,” said AJ Bell investment director Russ Mould. “It had better get used to the nickname ‘Flopperoo’.”

The UK-based company had priced 384.6 million shares at 390 pence per share, the bottom of its marketed range between 390 pence and 410 pence ($5.65), hoping to target a valuation of 7.6 billion pounds ($10.5 billion). But it’s the first of London’s top five deals this year that wasn’t able to open at its highest targeted valuation, shedding more than 2 billion pounds ($2.7 billion) in market value on its trading debut.

Analysts say its IPO took a turn for the worse when multiple fund managers said they wouldn’t back the business due to concerns about working practices, spooking many that applied for its shares and possibly racing to dump them.

“It reflects the cautious approach big funds have shown to the stock amid concerns about working practices and governance,” said Neil Wilson, chief market analyst at Markets.com. “A lot of the big UK funds are not on side, which was failure number one.”

Amazon-backed Deliveroo, which trades on the London Stock Exchange under the ticker symbol ROO, raised 1.5 billion pounds ($2.1 billion) via proceeds from investors. It could have raised 1.77 billion pounds ($2.4 billion) had the company priced its shares at the higher end of its IPO range. But its offering was priced at the lower end because of a drop in shares for food-service firms such as JustEat and Delivery Hero on Monday, the Wall Street Journal reported, citing a spokesperson.

The company grew to the point of launching on the stock market partly thanks to the exploitation of its workers, said Connor Campbell, a financial analyst at SpreadEx. “Now, said exploitation is one of the main reasons behind its sour start to life as a public company,” he said.

It approached its market debut uniquely compared to other IPOs. Only institutional investors are able to participate in Deliveroo’s market debut on March 31, but private investors buying into its 50 million pounds ($68.6 billion) community offer can participate once unconditional trading begins on April 7.

Deliveroo was founded in 2013 by former banker Will Shu and his childhood friend Greg Orlowski. The British firm offers food, groceries, and alcohol for delivery on demand via an app, and ferries goods out to consumers through a network of gig-economy riders.

Its IPO will be a test for the UK tech startup industry, where valuations for unprofitable, high-growth companies have become increasingly bullish, even as public investor appetite for riskier businesses remains largely untested.

The company faces stiff competition in the sector from direct rivals Uber Eats and Just Eat, plus niche grocery delivery apps such as Gorillas, Getir, and Weezy.

Deliveroo primarily makes money by charging its restaurant and grocery partners a commission on each order, up to 35% in some cases. Though hoping to permanently benefit from an uplift in takeaway orders during the pandemic, the firm remains loss-making.

The firm reported a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.

Other revenue streams include its subscription programme for regular consumers who want lower delivery fees; food procurement deals; licensing out its “Editions” dark kitchens to restaurant brands; and its “Signature” marketing platform.

Its listing is also closely watched thanks to its dual-class share structure, which sees Shu retain control over the firm in a model similar to US listings. The CEO will be granted 20 votes per share, while other shareholders will receive one vote per share.

The IPO is set to make Shu a wealthy man, since he plans to sell approximately $36 million in shares, leaving him with a stake in the company worth around $662 million.

While Deliveroo has indicated that demand from institutional investors exceeded supply in the run-up to its IPO, a number of big firms publicly stated they would not back the company.

Aviva, Rathbones, Legal & General, and others variously cited Deliveroo’s lack of profitability, and the reputational and financial risk posed by the fact its riders are gig-economy contractors rather than workers entitled to a minimum wage.

That comes after the Supreme Court ruled in February that ride-hailing giant Uber needed to reclassify its drivers, also deemed contractors, as workers and pay them holiday pay and a minimum wage.

The IWGB, a British union representing gig economy workers, said it was organizing a strike of Deliveroo riders on April 7, when unconditional trading begins.

Goldman Sachs and JPMorgan are joint global coordinators on Deliveroo’s IPO, while Bank of America, Citigroup, Jefferies, and Numis Securities are join bookrunners.

Insider breaks down everything investors need to know about Deliveroo’s IPO – from its dual class structure to who’s making money and who’s shunning it.

Read the original article on Business Insider

Amazon-backed Deliveroo heads to its $2.5 billion IPO facing rider strikes and investor snubs over its business model

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FILE PHOTO: Abdelaziz Abdou, a Deliveroo delivery rider, poses with a bag of Aldi groceries, as discount supermarket chains Aldi and Lidl look poised to accelerate their push into home delivery to satisfy burgeoning demand for online grocery shopping in a shift expected to endure beyond the coronavirus crisis, in London, Britain, June 17, 2020.   REUTERS/Toby Melville
Abdelaziz Abdou, a Deliveroo delivery rider, poses with a bag of Aldi groceries, London.

  • Amazon-backed Deliveroo is under fire from delivery riders and fund managers ahead of its IPO next month.
  • They say its reliance on gig economy workers is variously unethical or a long-term cost risk.
  • The float is also test of UK investor appetite for unprofitable startups.
  • See more stories on Insider’s business page.

Amazon-backed food delivery firm Deliveroo has faced a barrage of criticism in the run-up to its highly anticipated float on the London Stock Exchange, as big-name investors and activists criticized its reliance on gig economy labor and questioned its underlying business model.

Deliveroo is set to float on March 31, aiming to raise up to $2.5 billion and at a target valuation as high as $12 billion.

At least six investment firms have said publicly they would not invest in Deliveroo’s float, including Aviva Investors, Rathbones, Legal & General, and Standard Life Aberdeen.

Also in the last week, the Bureau of Investigative Journalism published an analysis of 300 Deliveroo riders’ earnings, based on invoices voluntarily submitted online, finding that two-thirds made less than the minimum wage.

Meanwhile the IWGB, a small but vocal trade union for gig economy workers, says it has organized Deliveroo riders to strike when the firm’s float opens to retail investors on April 7, and published an investor briefing advising prospective backers to call the firm out on riders’ rights.

Deliveroo’s IPO will be a test for the UK startup industry, where valuations for privately held firms have become increasingly bullish. When CEO Will Shu chose to list in London rather than the US, it was heralded as a victory for a post-Brexit UK.

But its target valuation, as high as $12 billion, lack of profitability, and perceived business model risks have provoked skepticism this week.

The firm in its prospectus posted a £225.5 million ($311 million) pre-tax loss for the full-year 2020, a narrower loss than the £317.7 million ($438 million) it lost in 2019. Revenues were up 54% to £1.1 billion ($1.5 billion) from 2019.

“What’s unusual is that it’s going public at such a high valuation, at the top range, and it hasn’t made a profit,” Susannah Streeter, investment analyst at Hargreaves Lansdown, told Insider. “If it has to change the working conditions for its riders, that’s going to eat into its profit forecast.”

Uber’s Supreme Court loss in February, which forced the ride-hailing firm to reclassify its drivers as workers with more rights, has raised the specter of regulatory action for Deliveroo.

While Deliveroo has won or settled similar regulatory fights in the UK, it has lost battles in Spain and Italy, and has set aside £112.2 million to deal with fines and costs. It still faces action from the IWGB in the UK, as well as legal action in France and the Netherlands.

“The winds of change are blowing, in terms of the gig economy going through a big upheaval,” added Streeter.

In its 224-page investor prospectus, Deliveroo acknowledges the risk, stating:

“The independent contractor status of riders, which applies in most of the jurisdictions in which we operate, has been and continues to be the subject of challenge in certain markets, including in our key markets.

… The costs associated with defending, settling, or resolving pending and future litigation or governmental agency investigations relating to the independent contractor status of riders could be material to our business (including additional taxes and penalties) and, regardless of outcome, could negatively affect our reputation.”

Aviva, the first investment firm to say it wouldn’t back Deliveroo, cited its gig-economy model as a risk. (Insider’s Theo Golden subsequently analyzed Aviva’s holdings and found it had exposure to a number of other gig-economy firms, such as Uber.)

Equally seriously, fund managers are skeptical that Deliveroo can parlay its pandemic growth into long-term success.

Rathbones’ chief strategist told Insider that Deliveroo’s continued unprofitability made him wary, adding that the boom in takeaway during the pandemic would not continue after lockdowns lift. “I think people are extrapolating that this trend will continue, and I don’t believe that,” he said.

Streeter is likewise skeptical. “I think more people are going to want their food delivered from a waiter’s tray than two miles on the back of a person’s bike,” she said.

Deliveroo signaled that it has had “significant” investor demand for its stock debut, which takes place March 31.

“This proud British business looks forward to listing on the London Stock Exchange,” a spokesperson said, adding: “The Roadshow began on Monday and the deal was covered by demand across the full price range by the end of the first morning.

“Demand has continued to build since then, including via our community offer, and we look forward to welcoming new shareholders next week alongside our currently highly respected existing investors.”

And while the firm acknowledged in its prospectus the risks to its business model from any reclassification of its 100,000-plus delivery riders, it publicly shot back against both the Bureau of Investigative Journalism’s research and the IWGB union.

The firm argued that its riders were given “freedom” to accept or reject deliveries and that it received a regular flow of new driver applications. It argued that the Bureau’s findings were “misleading” and “unverifiable” and that it had analyzed earnings of a minority of its 100,000-plus riders. It said riders can earn £13 per hour, higher than the national living wage of £8.72 per hour.

Post-pandemic growth is possible, according to Streeter, if the firm can boost the amount customers spend per order.

“If Deliveroo can corner the higher-end restaurant market – I think it’s still got a bit of a takeout tag attached to it – there is potential for growth,” she said. “That could offset losses if it was forced to change worker conditions.”

“But,” she added, “It does have competition, Just Eat, Uber Eats. There’s lots of competition for Deliveroo’s business.”

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Amazon-backed food delivery firm Deliveroo is now worth $7 billion after a $180 million pre-IPO funding round

Deliveroo CEO Will Shu
Deliveroo CEO Will Shu at President Macron’s tech summit in France in 2018. Shu said he was the only one who didn’t turn up in a suit.

  • Food delivery firm Deliveroo is now worth $7 billion after raising $180 million in fresh funding.
  • The Amazon-backed company is preparing to go public later in 2021.
  • Insider reported this week that UK-based Deliveroo could be valued at up to $13.6 billion when it floats, with one source pegging April for an IPO date.
  • Visit Business Insider’s homepage for more stories.

Amazon-backed food delivery firm Deliveroo is now valued above $7 billion after raising $180 million in fresh capital.

The new round was led by two of Deliveroo’s existing backers, Durable Capital Partners and Fidelity. Both are investors that put money into public as well as private firms.

UK-headquartered Deliveroo, which has experienced a boom in custom amid national lockdowns, also on Sunday confirmed plans for a stock market debut. The company, though run by American CEO Will Shu, is expected to list on London’s Stock Exchange.

Insider reported earlier this week that an IPO could value Deliveroo at £10 billion ($13.6 billion), and that the firm was potentially eyeing an April float.

That Durable Capital and Fidelity are upping their stakes now signals confidence in Deliveroo’s prospective share price and future growth. As one industry source put it: “Why buy in at $13 billion when you can buy in at $7 billion now?”

The gambit has worked before.

Both Durable Capital and Fidelity invested in Deliveroo’s US equivalent, DoorDash, around six months ahead of its December IPO at an approximately $16 billion valuation. On IPO, DoorDash topped a $32 billion valuation and its market cap now hovers around the $60 billion mark.

Deliveroo is based in the UK and competes with the likes of Uber Eats in Europe and parts of Asia. It does not currently operate in the US. It offers food, alcohol, and grocery deliveries on demand via an app and relies on a network of gig-economy cyclists and motorcyclists to ferry items to customers.

FILE PHOTO: A courier for food delivery service Deliveroo rides a bike in central Brussels, Belgium January 16, 2020. Picture taken January 16, 2020. REUTERS/ Yves Herman
A courier for food delivery service Deliveroo rides a bike in central Brussels

It was founded in 2013 by Shu, formerly an investment banker, and Greg Orlowski. Orlowski left in 2016, and Shu remains the CEO of the business.

An IPO would cap a rollercoaster year for the firm.

As is typical for high-growth, venture capital-backed firms, Deliveroo has been mostly loss-making to date. As the UK, its primary market, went into lockdown in the spring and restaurants shuttered, the firm warned it may collapse.

The situation was exacerbated by the UK’s competition regulator denying Deliveroo access to a large tranche of $575 million in funding, led by Amazon in 2019, on competition grounds. Deliveroo laid off about 300 staffers to reduce costs.

The regulator eventually cleared the funding in April, concluding there was no antitrust threat from Amazon’s involvement. Deliveroo’s business also began to improve as restaurants turned to delivery apps for revenue and consumers upped their takeaway orders, bored of home cooking.

Having initially warned of collapse, Deliveroo towards the end of the year said it became “operationally profitable” in 2020.

Its most recent publicly available financials showed increased revenue for 2019 of $1 billion, a gross profit margin of around 24%, and heavier year-on-year pre-tax losses of $393 million.

Got a tip on Deliveroo? Contact the reporter behind this story, Shona Ghosh, at sghosh@businessinsider.com, shonaghosh@protonmail.com, or +447412061471 for Signal.

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