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Deliveroo Shares Plunge in Market Debut

It’s a rough first day of trading.
(nrqemi)
(nrqemi)
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Food delivery startup Deliveroo had a rough public debut, dropping as much as 30%, WSJ reports.

Why It Matters: The pandemic-fueled surge in online delivery demand turned Deliveroo into one of the hottest IPOs in Europe to come in 2021. But even with Amazon as backers, concerns about Deliveroo’s profitability still hang heavy among investors. Several major institutions announced they wouldn’t buy shares for that reason.

Number Check: “The company, the U.K.’s equivalent of DoorDash Inc., recently traded at £3.06 a share on the London Stock Exchange, around 22% below its initial public offering price of £3.90, valuing the company at £5.9 billion, equivalent to around $8.1 billion.”

Complicating It Further: As Covid-19 vaccines rollout and countries around the world lift lockdown restrictions, people could start returning to physical restaurants and undercut Deliveroo’s hype. There’s also the ongoing fight, with Uber at the center, of whether drivers and other gig economy workers should be classified as employees that receive corporate protection and benefits.

  • Competitors in the space have been feeling the heat as well. DoorDash has fallen roughly 40% since hitting a high in February, Just Eat Takeaway.com NW, which acquired Grubhub last year, has seen its share price drop by a third since its October high.

Looking Ahead: Deliveroo has to figure out how to channel the ongoing pandemic moment into a time where it’s all a thing of the past. As a means of growing revenue, “it has been expanding its network of delivery-only kitchens, and delivering groceries for a group of U.K. supermarket chains.”

  • Amazon remains the biggest shareholder in the company — it took a 16% stake in 2019 and is expected to thin that down to 11% — but a lot Deliveroo’s future will call on founder and CEO Will Shu, who maintains control as a minority owner for now through special supervoting shares.
  • Deliveroo’s performance could also raise questions about London’s viability as a listing venue for tech firms.

Justin Oh:

After the drop, Deliveroo (ROO:LN) is trading for GBP 2.849 per share on the London Stock Exchange, which I believe is a GBP 5.1 billion valuation. 

Deliveroo delivered 54% Revenue growth with 30% Gross Margins in 2020. The current stock price implies a 14.3x 2020 Gross Profit multiple. Assuming 30% growth in 2021, ROO is trading at ~11x forward Gross Profit. 

I don’t know much about Deliveroo or the U.K. delivery market, but this seems like a fair valuation. DoorDash ($DASH) seems to be a better company with 2-4x the growth rate, and it’s trading at <15x forward Gross Profit, depending on how fast you think growth slows down in 2021. 

Based on the valuations and momentum, and also as an American, I’d probably be more interested in digging deeper into DASH than ROO.

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