Deliveroo shares plunge in disastrous market debut - as it happened

Graeme Wearden

from on 2021-03-31 17:57 (#5G060)

Rolling coverage of the latest economic and financial news

Latest: Deliveroo closes down 26% on opening day
Shares sold at 390p in IPO, close at 287.45p
Rishi Sunak: Shares prices go up, and share prices go down
Deliveroo shares tumble after IPO
Keir Starmer: I wouldn't buy shares in Deliveroo
TUC: Workers need better treatment
Analyst: Horrible start to trading

6.49pm BST

Time for a recap

Meal delivery company Deliveroo's stock market debut has proven to be an unappetising flop that leaves investors facing heavy losses, on paper.

Firstly, the company doesn't make a profit, even though the pandemic provided the biggest tailwind it could hope for. That benefit will fade as lockdowns end and diners return to pubs and restaurants over the summer. Remember, too, that Deliveroo had to be bailed out by Amazon last year, and it continues to operate in a highly competitive market.

Most recently, several major City investors, including Aviva and Aberdeen Standard, opted out of the hotly anticipated IPO citing ESG concerns related to the company's treatment of its employees. They're also turned off by founder and chief executive Will Shu who still has over 50% of shareholder voting rights.

As we reach this milestone I want to thank everyone who has helped to build Deliveroo into the company it is today - in particular our restaurants and grocers, riders and customers.

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

This was in response to the pound climbing 0.5% against the dollar - returning to $1.379 - and 0.3% against the euro.

The UK index may also be smarting after the disastrous debut of Deliveroo, which has potentially damaged the appeal of a London listing for future unicorns.

Nasdaq jumps 2% as Big Tech rallies, S&P 500 rises to all-time high https://t.co/yKh1xQ4l5y

6.03pm BST

The Bet365 boss, Denise Coates, was paid nearly half a billion pounds in salary and dividends last year in a record-breaking deal that takes her pay since 2016 to more than 1.2bn.

After an unusual delay in filing its accounts at Companies House, the gambling company released accounts showing that its highest-paid director, understood to be Coates as chief executive, received 421m - or 48,000 every hour of every day throughout the 12-month period.

5.38pm BST

The wider London stock market had a poor day too, with the FTSE 100 closing 58 points lower at 6713 points, a drop of 0.8%.

Commercial property company British Land led the blue-chip fallers, down 3.3%. Banks and energy companies also dropped, along with engineering firms Rolls-Royce (-3%) and Melrose (-2.8%).

5.16pm BST

Anyone thinking Deliveroo might rise phoenix like from the flames at the end of its first day of trading will be sorely disappointed," says Danni Hewson, financial analyst at AJ Bell.

But she, like Rishi Sunak, points out that other tech companies have had disappointing starts to life on the stock market, but gone on to thrive.

There is no happy ending to what, so far, is a cautionary tale for some investors. But will that tale have a sting at the end of it? Deliveroo is not the first company to experience a rocky start. Uber stocks fell more than 7% on its debut but, if you'd kept your nerve, you'd be up 20% today. Facebook had a torrid year or so as a listed business but if you'd hung on from those initial lows your investment would be up by more than 10-fold today.

The stock market can be a fickle friend. Sometimes it can give you instant gratification; sometimes you have to hang on for the ride and sometimes you'll wish you'd never jumped on in the first place. Clearly investors saw an opportunity in Deliveroo and that hasn't disappeared. This is a business that has a point to prove. Anyone really looking at its credentials in recent days couldn't miss that. What's changed is that now the business needs to prove it quickly and publicly."

5.00pm BST

After a truly grim session, shares in Deliveroo have closed down over 26% today.

The debut of the decade' turned into a day to forget, with the meal company's shares ending the day at 287.45p in the first day of conditional trading.

Fabian de Smet, head of investment banking at Berenberg, called it a sector problem".

Investors are turning away from the work-at-home play and putting their money into the economic recovery play. Deliveroo got caught in the middle of a huge rotation. It was the last IPO of the old COVID world," he said.

#ROO Deliveroo shares drop 26.3% on stock market debut.
Not a good start for IPO investors. No position. Maybe a recovery play at some stage. pic.twitter.com/wjpxFP5Ll3

4.12pm BST

UK chancellor Rishi Sunak has insisted he doesn't feel embarrassed by Deliveroo's share price slide today, given his previous support for the company.

Earlier this month, Sunak welcomed Deliveroo's decision to float in London, calling it a true British tech success story", at a time when the UK was changing listing rules to attract tech firms.

Oh gosh, no.

Having spent my life previously to politics being in business, share prices go up, share prices go down."

Asked by @Peston if he was embarrassed by his endorsement in light of the Deliveroo share price fall, Sunak said: "Oh, Gosh no ... share prices go up, share prices go down." https://t.co/7H1xcFbO0C

It's important businesses like that feel that they can stay in the UK to raise capital.

That's why we've made some reforms to how capital is raised here which will be good for our competitiveness.

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."

3.35pm BST

The International Monetary Fund has warned that emerging economies will suffer more serious long-term economic damage than advanced ones from the pandemic.

In a new blog post, the IMF predicts that the long-term damage of Covid-19 will be less severe than after the financial crisis, but it will also hit developing markets harder.

Despite higher-than-anticipated growth as the global economy recovers from the COVID-19 shock, we expect world output in the medium-term to be about 3 percent lower in 2024 than pre-pandemic projections. Because financial stability has largely been preserved, this expected scarring is less than what we saw following the global financial crisis.

However, unlike what happened during the global financial crisis, emerging market and developing economies are expected to have deeper scars than advanced economies, with losses expected to be largest among low-income countries.

Widespread school closures have occurred across countries, but the adverse impacts on learning and skills acquisition have been larger in low-income countries. The resulting long-term individual earnings losses and damages to aggregate productivity could be a key legacy of the COVID-19 crisis.

3.34pm BST

Deliveroo is on track to have one of the London Stock Exchange's worst opening day IPOs ever. Share price is currently down around 25% pic.twitter.com/rgMlDB5RzZ

Seems like the company was massively overvalued going into the IPO and trading volume appears to have been much lower than Goldman et al anticipated

2.45pm BST

On Wall Street, stocks have opened higher following the rise in private sector employment this month.

There's also anticipation that president Joe Biden will outline proposals for a new multi-trillion infrastructure spending package later today.

Biden's plan, which he will lay out at a speech in Pittsburgh on Wednesday afternoon, includes historic and galvanizing" investments in traditional infrastructure projects such as roads, bridges and highways, as well as hundreds of billions of dollars to fortify the electricity grid, expand high-speed broadband and rebuild water systems to ensure access to clean drinking water, an administration official said on Tuesday.

2.29pm BST

Deliveroo's calamitous" float is a bad look for London, and will damage ambitions to become a hub for technology listings, warns Bloomberg's Alex Webb.

Webb writes:

Attracting one of Europe's hottest startups was hailed as a win for the U.K., one that would draw more unicorns to the London market. But the mismanaged IPO is likely to have the opposite effect, further setting back London's ambitions to steal listings from New York and Amsterdam. When investors lose money on IPOs, they tend not to be too eager to buy into the next one.

Deliveroo's showing undoes, for now, much of the effort to make London more attractive to tech firms. The government is pushing through new proposals that will let founders retain control of companies for five years after an IPO, while making it easier for special-purpose acquisition companies to list in the U.K. Companies with dual-class shares will also become eligible for inclusion in top indexes like the FTSE 100. Deliveroo was taking advantage of some of those rules, with Chief Executive Officer Will Shu owning 58% of the voting shares while owning only 6.3% of the economic interest.

Deliveroo is years away from profitability in a market where competition with the well-capitalized Uber Technologies Inc. and Just Eat Takeaway.com NV is fierce.

London just learned the hard way that becoming a hub for tech listings is not easy.https://t.co/XRkK6hcVt2 via @atbwebb pic.twitter.com/YHBPu2jP1u

2.15pm BST

Back in London, Deliveroo is continuing to suffer a torrid stock market debut.

Its shares are currently down 25% from the IPO price of 390p, at around 290p.

As well as valuation concerns, with the company not making any profit yet, investors have been put off after a number of fund managers said they won't be investing in the business because of the firm's treatment of its riders.

Deliveroo's gig economy model means drivers won't get paid holidays, pensions and other benefits. But if the government were to force Deliveroo to treat its worker as employees, then serious questions will be raised about the company's path to profitability given that its margins are already thin as they are and the competitive nature of the delivery industry.

The highly-anticipated listing, the biggest on the London market in a decade, had been hailed by British finance minister Rishi Sunak as a true British tech success story" that could clear the way for more initial public offerings (IPO) by technology companies.

Hefty losses, a punchy valuation and founder Will Shu's super-voting stock all proved a turnoff in Deliveroo's IPO. The flop should prompt a rethink of the government's rushed plans to lure more such companies to London, write @peter_tl and @KarenKKwok: https://t.co/jNgBxZFQri pic.twitter.com/YhRLenVl3c

2.03pm BST

Michael Pearce, senior US economist at Capital Economics, says the jump in US payrolls this month shows that the lifting of restrictions is quickly feeding through to stronger economic activity.

While a lot of the acceleration in payroll growth on the ADP measure appears to reflect easing restrictions on indoor dining, with leisure and hospitality sector adding 169,000 jobs, there were broader signs of strength in the services sector. There were outsized payroll gains in trade, transport and utilities (+92,000), professional and business employment (+83,000) and education and health (+68,000).

The goods producing sector added 80,000 jobs, with manufacturing payrolls up by 49,000 and construction employment rising 32,000, though that latter strength reflects some bounce back following the severe weather disruption in February.

1.44pm BST

Over in America, employers have hired more than half a million new staff this month, a survey shows, as the US economy recovers from the pandemic.

The ADP National Employment Report shows that private payrolls increased by 517,000 jobs in March, the best reading in six months.

JUST IN: Private payrolls in March expanded at the fastest pace since September 2020 as anticipation of a strong economic rebound coupled with vaccination rates pushed companies to hire. Firms added 517,000 jobs, a healthy spike from the 176,000 in Feb. https://t.co/PCTXTBNHep

Hiring ramped up in March with ADP reporting that private firms added 517-thousand jobs, the strongest gain in six months. Pretty even distribution between large, medium and small sized businesses. Dow dipping into the red but the #NASDAQ +86

Boom: @ADP March employment report shows 517K jobs added to nonfarm payrolls, most since Sept. Leisure and hospitality (bars/restaurants) accounted for 169K of the positions recovered/added.

Job growth in the service sector significantly outpaced its recent monthly average, led with notable increase by the leisure and hospitality industry.

This sector has the most opportunity to improve as the economy continues to gradually reopen and the vaccine is made more widely available. We are continuing to keep a close watch on the hardest hit sectors but the groundwork is being laid for a further boost in the monthly pace of hiring in the months ahead.

1.20pm BST

The UK housing market has cooled off this month, as the boost from the stamp duty holiday fade.

Mortgage lender Nationwide has reported today that house prices dipped 0.2% month-on-month in March on a seasonally-adjusted basis, following a rise of 0.7% in February.

Given that the wider economy and the labour market has performed better than expected in recent months, the slowdown in March probably reflects a softening of demand ahead of the original end of the stamp duty holiday before the Chancellor announced the extension in the Budget.

Recent signs of economic resilience and the stimulus measures announced in the Budget, including the extension of the furlough scheme and the stamp duty holiday, as well as the introduction of a mortgage guarantee scheme, suggest that housing market activity is likely to remain buoyant over the next six months.

1.11pm BST

Over in the eurozone, inflation has jumped to its highest level since the pandemic began.

Consumer prices rose by 1.3% per year in March, data provider Eurostat estimates, back towards the European Central Bank's annual inflation target of just below 2%.

Euro area #inflation up to 1.3% in March: energy +4.3%, services +1.3%, food +1.1%, other goods +0.3% - flash estimate https://t.co/imFjufBVin pic.twitter.com/aIkIpReU2G

Eurozone's inflation rate rises to 1.3% in March, the highest since April 2019, suggesting ECB could hike interest rates faster than expected @graemewearden

Price pressures came through in fuel costs which have seen a 200% increase in the oil price against this time last year when prices collapsed as the pandemic started. This base effect in inflation popping in the short term is as expected but it is unlikely to persist beyond a few months in our view.

The ECB has stressed that they will continue to look through the modest inflation increases in the short term, viewing it a as temporary aberration rather than a medium term move to a higher inflation threat level. Equities and bonds have been reacting slightly manically over the last few months on inflation expectations moving sharply higher and as long as these prints remain contained, it will help limit their collective neuroses.

12.56pm BST

Pub chain Fuller, Smith & Turner has also given an insight into the damage caused by Covid-19.

12.46pm BST

Putting Deliveroo to one side... specialist insurance market Lloyd's warned this morning that it faces a 6bn hit from pandemic-related claims - a reminder of the economic cost of Covid-19.

Lloyd's reported pre-tax net losses of 900m for 2020, blaming natural catastrophe claims and Brexit for hitting earnings alongside the pandemic. In 2019 it made a pre-tax profit of 2.5bn.

The expected 6.2bn Covid-19 payouts are significantly higher than the 5bn it had forecast in September, before second waves of the pandemic had fully hit developed economies.

Lloyd's is hoping for a much-reduced level of claims during 2021, although the week-long blockage of the Suez canal trade route by the grounded Ever Given ship is likely to cost at least 100m in payouts.

12.34pm BST

Here's our full story on Deliveroo's float, by Rob Davies:

12.17pm BST

Labour leader Sir Keir Starmer has weighed in, saying he wouldn't buy shares in the meal delivery company.

No, I wouldn't buy shares in Deliveroo. I accept the argument that we have got to have economic growth coming out of this pandemic, that is an absolute priority, but what we can't do is go back to the broken system that we had before.

Insecure work, not proper pay, low standards. We need to have the ambition to go forward to an economy which is long term, high standards, high wage, with proper protection for those within the workforce.

What I think there needs to be is a framework that makes it very clear that our economy of the future has to be one which is about security at work, fairness at work, longer-term investment, skills.

That is obviously better and fairer for those within either the gig economy or any part of our economy.

Labour Leader Keir Starmer: "I wouldn't buy shares in deliveroo."

Says there needs to be a framework for gig economy workers to ensure security and fairness at work.

12.11pm BST

Although its shares have taken a plunge (in conditional trading), Deliveroo has still raised 1.5bn through its initial public offering.

Of that money, 1bn is going to the company and 500m to existing investors.

I am very proud that Deliveroo is going public in London - our home. As we reach this milestone I want to thank everyone who has helped to build Deliveroo into the company it is today - in particular our restaurants and grocers, riders and customers.

Right now, less than one of those 21 transactions takes place online. We are working to change that.

11.53am BST

Lee Wild, head of equity strategy at interactive investor, sums up the situation:

It's been a disastrous stock market debut for Deliveroo after a cool reaction from the City.

After months of speculation and drama, shares in Deliveroo - ticker ROO - began trading on the London Stock Exchange at 8am on Wednesday. But it wasn't the start the takeaway food delivery firm had wanted, with the price plunging by 30% in quick time.

11.47am BST

One technical point. Deliveroo is currently trading on a conditional basis on the London Stock Exchange.

Unconditional dealing is due to begin on 7th April, when the company is officially listed, which is when conditional deals are settled. So the float could theoretically be cancelled before then, as Sam Shead of CNBC points out. But that would be most unusual.

How much would Deliveroo's share price have to collapse before Deliveroo just cancels the IPO...? https://t.co/3WYVO4Tnsg

Deliveroo can cancel its IPO up until April 7.. pic.twitter.com/qZHmFhG9UJ

11.29am BST

After more than three hours of conditional trading, Deliveroo's shares are hovering around the 300p mark.

That's a roughly 23% decline on its initial public offering price of 390p, but up from the 30% plunge early in the session.

Deliveroo $ROO shares suffered heavy losses out of the gates in its first hour of trade as a public company, despite pricing its shares at the bottom end of expectations, citing volatile' market conditions. @VictoriaS_IG has the details. #trading https://t.co/JYbZpafHjX pic.twitter.com/lVlIYgwIIA

11.12am BST

The sight of investors shunning Deliveroo should force the company to rethink how it treats its workers, says UK unions chief Frances O'Grady.

Deliveroo has no excuse for the way it treats its workers.

It's a damning indictment of the company's exploitative business model that so many major funds have publicly shunned this float.

10.18am BST

The nicknames are pouring in.

As if Deliveroops' wasn't bad enough, AJ Bell investment director Russ Mould says:

Deliveroo has gone from hero to zero as the much-hyped stock market debut falls flat on its face. It had better get used to the nickname Flopperoo'.

Initially there was a lot of fanfare about the Amazon-backed company making its shares available to the public, including the ability for customers to buy stock in the IPO offer.

Sadly, the narrative took a turn for the worst when multiple fund managers came out and said they wouldn't back the business due to concerns about working practices.

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. 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.

Fast growth jam tomorrow shares are no longer in fashion as investors now prefer lowly-valued stocks that offer jam today. That meant Deliveroo was already fighting a headwind as soon as it hit the stock market."

9.50am BST

The Financial Times also reckons Deliveroo's shaky debut is a blow to ambitions to lure more British tech companies to list in the UK.

Here's the FT's early take:

The initial public offering had given Deliveroo an opening valuation of around 7.6bn, the highest in London since resources group Glencore's 2011 IPO, according to Dealogic data.

But the food delivery app quickly shed more than 2bn in market value in its first moments as a public company, in one of the sharpest drops for a major new listing in years.

9.42am BST

The City's biggest concern about Deliveroo is future regulation around worker rights, says Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

That's because the company would find it harder to reach profitability if it was forced to guarantee more benefits to its couriers.

The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo's riders is a huge pillar of the group's plans for success.

If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo's already thin margins would struggle to climb, and the road to profitability would look very tough indeed. Throw in the recent developments at Uber, and general market volatility, and the net effect is one of increased anxiety. Sadly for the group, anxiety doesn't tend to inflate share prices.

The pandemic has offered a structural growth opportunity, but it's worth asking if lockdowns mean things are as good as they will ever be for a takeaway service. The longer-term outlook depends on how demand holds up in a post-pandemic world, and if that road to profitability looks any clearer."

9.30am BST

Deliveroops (!)

Shares plunge -30% in its London debut. #Deliveroo

deliveroops https://t.co/it1YJHneNh

9.10am BST

Shares in Deliveroo got off to a horrible start on the market, says Neil Wilson of Markets.com.

He blames several factors -- including the City's wariness of the dual-class' share structure which gave founder Will Shu more power than other shareholders. Plus, many large investors had concerns over Deliveroo's working practices and governance.

A lot of the big UK funds are not on side, which was failure number one. Will Shu could have avoided that by going for a premium listing and eschewing the tech stock desire for a dual-class structure that leaves power with the founder. Old City habits die hard, despite what the FCA wants to do.

Chiefly though 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.

9.01am BST

Deliveroo's poor debut will not please investors who took part in the IPO.

That including some of its most loyal users, who got priority on the 50m of shares for UK-based customers with a Deliveroo account.

Numbers from the Deliveroo @Deliveroo offer of shares to retail investors - 70,000 people (all Deliveroo customers) between them took the 50m worth of shares available, market source say. That would mean an average of 714 worth of shares @BBCr4today #r4today

Deliveroo shares down by as much as 30pc on the Terminal as the Roo IPO gets off to a shaky start, not good for the 50m of retail money that bought in through its app

9.00am BST

Deliveroo's disappointing launch onto the stock market could damage London's hopes of attacting more tech flotations, flags up Reuters.

Shares in Deliveroo opened well below the price of their initial public offering on Wednesday, falling as much as 30% to in one of the steepest trading debut falls for a major company on the London market for years.

The 390 pence price tag gave an overall valuation of 7.6bn ($10.46bn) for the company, less than initially expected, after a string of major UK fund managers said they would not take part, citing concerns about its dual class share structure and its gig economy business model.

Deliveroo shares tumble in London debut https://t.co/aium7lT5CZ pic.twitter.com/AZ0IBy1fbm

8.38am BST

Shares in meal delivery company Deliveroo are slumping as it makes its debut on the London Stock Exchange today.

Shares in Deliveroo opened at 331p, down from the 390p which investors paid for the company in its initial public offering -- the biggest in almost a decade.

Big yikes. Deliveroo debut day and it's down 23.6% in the first 15 minutes of trading. Now sub 3. pic.twitter.com/rXy0HNMkEY

Deliveroo doesn't deliver.
London share float flops.
Currently down more than 25%. pic.twitter.com/vWvobinsEB

The IPO has provoked a sense of unease among some in the City.

A portfolio manager at another large investor said Deliveroo's treatment of workers would raise concerns, while others in the investment industry have questioned Deliveroo's decision to list with two share classes, a move that will give co-founder Will Shu tighter control over the business for three years.

8.14am BST

Here's some early reaction to the revised UK GDP figures, from Sky's Ed Conway:

Fall in 2020 GDP revised down from 9.9% to 9.8%. Another revision like that (which is quite plausible) and 2020 will only" have been the worst year since 1921 (-9.7%), rather than the worst year since 1709 (-13.4%). https://t.co/MH0ZicHNwL

New ONS data show #UK #economy was even more resilient than first reported in fourth quarter of 2020 as GDP grew 1.3% quarter-on-quarter (revised up from 1.0% q/q) despite November lockdown & other major restrictions. Overall GDP contraction in 2020 trimmed to 9.8% from 9.9%

The U.K. economy remained the hardest hit in the G7 by Covid-19 in Q4, with GDP 7.3% below its peak. This weakness *cannot* be attributed to how the ONS measures real government expenditure, which in Q4 actually rose 0.3% y/y. Instead, h'hold spending and exports are to blame: pic.twitter.com/YHvZABMBme

8.13am BST

Today's updated GDP report also shows that UK households saved at a record pace last year.

The ONS says:

The household saving ratio increased to 16.1% in Quarter 4 2020, an increase from a revised 14.3% in Quarter 3 2020; over the year 2020, the household saving ratio rose sharply, reaching a record high of 16.3%, compared with 6.8% in 2019.

7.45am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Our revised quarterly figures show the economy shrank a little more than previously estimated in the initial stages of the pandemic, before recovering slightly more strongly in the second half of last year,"

Commenting on our revised GDP figures for the fourth quarter of 2020, @jathers_ONS said:
(1/2) pic.twitter.com/zk5LJm49BB

.@jathers_ONS continued:
(2/2) pic.twitter.com/oWDMK1o7Rj

Although the listing is still expected to be biggest initial public offering in London for a decade, a number of leading fund managers are avoiding the shares owing to concerns about Deliveroo's labour practices, which do not guarantee minimum pay rates for its couriers.

Along with other operators in the gig economy, Deliveroo, which is backed by Amazon, has faced legal challenges around the world from couriers and drivers seeking access to basic rights, such as minimum wages and holiday pay.

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