Deliveroo’s IPO Flopperoo Driven By Workforce Regulation Changes


U.K.-based food delivery app Deliveroo is not having a terrific first week on the public markets.  The Amazon-backed delivery service saw its share price plunge 30 percent on its first day of trading before eking out a small recovery that still left stock priced down 26 percent as its first official day came to close. The sputter performance in London comes a mere four months since its American counterpart DoorDash made its initial public offering (IPO) debut in December and saw its share price shoot up over 80 percent before its first day on the market had ended.

Deliveroo clearly was hoping to see some similar magic. It initially priced its shares at 3.90 pounds ($5.36) for an expected market value of 7.59 billion pounds, which was at the bottom end of its IPO target range. Clearly there was a hope that a day-one stock pop would push it closer to the top of its range.

But Deliveroo didn’t pop, it sputtered, as its share price dropped as low as  2.73 pounds on the London Stock Exchange Wednesday (March 31), wiping approximately 2 billion pounds off the firm’s valuation on day one as a public entity. So what went so wrong? How did Deliveroo end up delivering the year’s first big flopperoo on the public markets?

A big part of the story is feared regulatory change coming to the gig worker space under consideration by U.K. regulators and legislators that could damage the firm’s ability to maintain profitability in the future.

“That path to profitability is what is potentially under threat if we see increased regulation around workers’ rights,” Hargreaves Lansdown equity analyst Sophie Lund-Yates told CNBC. “I think that is the biggest reason we have seen so much anxiety injected into the trading this morning.”

And that concern issues from changes already occurring in the segment. In early March Uber reclassified all 70,000 of its U.K. drivers as minimum wage and benefit entitled workers in response to a U.K. Supreme Court ruling that ordered the firm to reclassify some of its drivers as workers. Deliveroo currently serves 12 markets with a network of 100,000 drivers to deliver food from roughly 115,000 restaurants and grocers, and similar reclassification sent doubts shivering through London investors.

Moreover, the long-term prospects of food delivery apps as the world recovers from the COVID-19 pandemic are very much up in the air. According to PYMNTS’ most recent consumer survey data, ordering food on delivery has become a fairly well ground-in habit — 80 percent of consumers who are ordering more of their food via aggregators reported they plan to keep doing so after the pandemic has subsided. But that is balanced out by data indicating that consumers would really like to get back to dining out in restaurants — with 51.4 percent reporting they would do so more if a vaccine were readily available to them and 55.9 percent reporting they would like to do so more than they do now.


And given that palpable hunger to get back to being able to dine out, Paytronix CEO Andrew Robbins told Karen Webster in a recent conversation, aggregators like DoorDash and Deliveroo have a lot to prove as vaccines are going out and the pandemic period is coming to an end.

“It’s just like Zoom. They’ve benefited from a massive disruption to the system,” Robbins said. “The reality is that’s going to ease. People like to go back to their old behaviors, so that’ll happen. But some of what’s here will remain, and it will be interesting to see exactly how much and what they can do with it.”

The platforms, he noted, have shown that they can do a lot with a surging tide — but the real question is how well they do when that tide begins to ebb and if their businesses remain profitable. That might be more challenging than they are anticipating, Robbins said, given the love-hate relationship they’ve developed with the restaurants on their platforms who have been happy to have the outlet in a time of need, but haven’t loved how much that service costs them.

“I think they’re just hoping to hang on,” he said of independent restaurants. “Right now, they need whatever orders they can get. But there’s a vaccine, and  sometime this summer in 2021, it’ll return to normal and it is a whole new ballgame.”

A ballgame that at this point remains to be seen whether players like DoorDash and Deliveroo are prepared to play.

And given Deliveroo’s day one stumble, there is plenty of work ahead on its in-house agenda to regain the confidence of the market and investors.

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


Read More On Delivery: