Why did Deliveroo flop? Three reasons the delivery giant failed its market debut
Before March 21, the last time I heard my non-tech/non-finance friends talking about an IPO was Facebook in 2012. After a rough, dissapointing first day, it took over a year for shares to recover to their opening bell value of $38. On the 21 March, my friends talked about Deliveroo.
One of them had received an email from the company about their upcoming IPO, and broadly they seemed keen to invest in a brand which they liked, and had used increasingly regularly over the course of the lockdown.
Today, the Amazon backed delivery company tanked in its London market debut. A last minute price cut didn’t sooth a market troubled by its business and operational model.
Here’s three big reasons I see for Deliveroo’s IPO flop, and why it’s long term success may be under threat.
Market Peak
For the past year we’ve been in a global pandemic. Te only option for people (especially in the UK) who don’t want to cook for themselves is to hop on their phone and have something brought to them on the back of a bike. The pandemic expanded the entire market by over 50% and Deliveroo took a big portion of that to increase its market share.
With just two — three major competitors per market, Deliveroo will never have it this good. Long term, people will only use it less as we return to drive-throughs, eating in and picking up.
Bad Ethics, Bad Timing
Just over a month before Deliveroo made is debut, the UK’s Supreme court upheld a 2016 employment tribunal decision that drivers are in a “position of subordination and dependancy to Uber” — i.e. contractors who are entitled to protections like a minimum wage and holiday pay. For big investors that would have propelled Deliveroo’s own rider rights issues to the front of their mind.
Deliveroo’s prospectus says that ‘In the United Kingdom and certain other markets to date, the self-employed status of our riders has beenconfirmed in multiple court rulings’. However that wasn’t enough to convince istitutional investors that the risk was gone, and as The Guardian reported, “One of the UK’s top fund managers is to boycott the stock market float of the meal delivery firm Deliveroo next month, amid growing disquiet in the City over the company’s treatment of delivery workers.”
With Labour leader Sir Keir Starmer also saying he wouldn’t buy shares in Deliveroo on ethical grounds, it seems that somone might be left holding the toxic hot potato.
Forgetting the fundamentals
Of course, it’s not that the market lacks confidence in the delivery model and sector. This month alone on-demand grocery app Gorilla stormed to a unicorn-level $1 billion valuation after a $290,000,000 Series B funding round.
Add in concerns over the fact that Deliveroo has no idea when it might start to turn a profit, and that holders of the standard A class shares will be entitled to one vote per share while B shares carry 20 votes apiece with founder Will Shu the only one holding those B shares and you have a very opreation.
It might be that the same market which rocketed DoorDash to a dizzying IPO and market cap last year is now coming back to earth
Beginning of the end, or end of the beginning?
Companies have had bad floats before. Facebook took it’s time but if you had bought when my friends started talking about it you’d be up a healthy percentage by now.
Can deliveroo pull off the same card trick? In a world where transparency is rewarded and consumers look almost as closely at ethics and actions as prices, Deliveroo seems to have the deck stacked against it.
