Deliveroo shares plunged by as much as 30 per cent on its long-awaited market debut, wiping more than £2bn off its valuation.
The delivery firm’s shares closed out their first day of trading well down at 287p, a sharp drop from the offer price of 390p per share.
The listing had been hotly anticipated given it is London’s biggest IPO since Glencore’s market debut in 2011. Chancellor Rishi Sunak hailed Deliveroo as a “true British tech success story”.
Was Deliveroo mispriced?
The offer price is at the bottom end of Deliveroo’s pricing range after a string of fund managers said they would not take part in the deal because of concerns over the firm’s economics.
Additionally, concerns over working conditions for its riders have been cited as one of the reasons investors gave Deliveroo the cold shoulder.
Even with the revised valuation of £7.6bn there had been worries the firm, which has not yet made a profit, is still overvalued.
“It reflects the fact that even pricing the IPO at the bottom of the range, Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability. The books were covered, it was just plain mis-priced,” Neil Wilson, chief markets analyst at Markets.com said.
Russ Mould, AJ Bell’s investment director, suggested the reaction could be a short-term issue and investors could flock to buy stock at the cheaper price.
““There are multiple ways of looking at the business. Bulls will say the pandemic has made online food ordering part of everyday life and this trend will remain intact once life returns to normal,” he said.
Bears will say it is a highly competitive space, Deliveroo doesn’t make any money and that takeaway ordering volumes will ease once the pandemic ends.”
Rival Just Eat is trading down one per cent.