Shares in Deliveroo plunged by as much as 30% in their trading debut on Wednesday, slicing more than 2 billion pounds off the company’s valuation in a blow to the food delivery group and the London market for initial public offerings (IPO).
The highly-anticipated listing, the biggest in 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 IPOs by fast-growing technology companies.
But the debut had already been overshadowed as some of Britain’s biggest investment companies shunned the listing, citing concerns about gig-economy working conditions and the share structure.
The 390 pence price tag gave an overall valuation of 7.6 billion pounds ($10.46 billion) and was already set at the bottom of an initial range.
Within minutes of the market opening on Wednesday, it lost 2.28 billion pounds of its value, which one senior equity capital markets banker said would hurt the market for initial public offerings in Britain and Europe.
“It’s an extremely painful move on one of the most anticipated IPOs of the year,” he said, asking to remain anonymous.
Having hit a low of 271 pence, the stock was back up to 298 pence by 1015 BST.
Shares often recover from steep falls on their market debuts as the managing banks make use of the over-allotment, or greenshoe - a percentage of the offer reserved to stabilise the price.
One trader said he had seen no buyers for the stock. “All we’ve seen is one-way traffic, not a single buyer,” he told Reuters on condition of anonymity.
A source familiar with the deal said it was a rough start, but the company would have to focus on the long term.
“Deliveroo has raised 1 billion of new capital today which they are going to invest in the business and new technologies. It is not about the share price on a single day.”
Deliveroo’s self-employed drivers have seen a boom in demand during the COVID-19 pandemic, bringing food from otherwise-shuttered restaurants to housebound customers.
But the Amazon-backed company has been running at a hefty loss; it said it narrowed an underlying loss to 223.7 million pounds ($308.93 million), from 317.3 million pounds in 2019.
Irrespective of profitability, there has been a clamour for growth companies over the last year as the COVID-19 crisis has sunk rates and government bond yields to all-time lows.
But with U.S. Treasury yields rising, this trade has lost allure and many tech stocks on both sides of the Atlantic have fallen in recent weeks, leading to questions over inflated valuations.
“That comes back to the issue that how could a company that was valued at 3 billion (pounds) in November, 5 billion in January, be magically worth 8-9 billion in March - particularly when according to its own statements it was potentially in need of emergency funding last year,” Russ Mould, Investment Director at AJ Bell, said.
The listing of the London-based company, founded by boss William Shu in 2013, is London’s biggest IPO since Glencore’s in May 2011 and also the biggest tech float yet on the London Stock Exchange.
The heavyweight investors that stayed away included Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G.
“The number of institutions lining up to say no on ESG (environmental, social and corporate governance) grounds always looked like it was going to make it a tricky debut,” said James Athey, investment director at Aberdeen Standard Investments.
Reporting by Abhinav Ramnarayan and Julien Ponthus; Additional reporting by Elizabeth Howcroft and Tom ArnoldEditing by Rachel Armstrong and Barbara Lewis