Shares in Deliveroo (ROO.L) continued to fall on Thursday after its dire stock market debut in London.
On Wednesday the loss-making food delivery company, which is backed by Amazon (AMZN), suffered one of the worst debuts on record, with shares falling 30% in the first half hour of trading, wiping more than £2bn ($2.7bn) off the company’s value.
The stock slumped a further 3% before recovering slightly on its second day. Deliveroo's 390p offer price had valued the business at £7.6bn.
Tens of thousands of retail investors who invested in the firm through a platform called PrimaryBid are now facing heavy paper losses on the back of the fall. Around 70,000 individuals put £50m into the company.
Wednesday marked the start of conditional dealing for Deliveroo shares, which means only institutional investors can buy and sell the stock. Retail investors must wait until the start of unconditional dealing next Wednesday to make any adjustments.
WATCH: Amazon backed Deliveroo slumps in trading debut
“Several reasons are behind the poor performance,” Neil Wilson of Markets.com said.
“In addition to the failure to bring several large funds on board, the dual class share structure, regulatory uncertainty, general profitability concerns and a miscalculation by the bankers on the pricing in relation to wider demand in the market, it also looks like some hedge funds shorted the stock aggressively from day one.
“Not all stocks have a happy start to life on the stock market – just ask Tim Steiner or Mark Zuckerberg – but it’s not a great advert for London as a destination for tech listings.”
Deliveroo said it intends to use the net proceeds from the issue of new shares to continue to invest in growth opportunities.
It came after the startup cut its potential valuation on Monday, following a revolt from the City of London over the company's treatment of drivers.
Several of the City of London's biggest money managers — including Aviva (AV.L), Aberdeen Standard Life (SLA.L), L&G (LGEN.L), and M&G (MNG.L) — publicly announced that they would not take part in Deliveroo's IPO.
Deliveroo, founded in 2013 as an app that lets people order takeaway food, signs up restaurants and then allows gig economy drivers to pick up delivery jobs on its platform. However, recent analysis revealed that more than one in three Deliveroo riders (41%) earnt less than £8.72 per hour, the minimum wage for anyone aged 25 or over.
Meanwhile, one in 10 took home less than £6.45, the lowest legal minimum wage for an adult.
As riders are self-employed, they are not entitled to earn a minimum wage from the company, holiday and sick pay.
Last week Andrew Millington, head of UK equities at Aberdeen Standard, said: “We will not be taking part in the Deliveroo IPO as we are concerned about the sustainability of the business model, including but not limited to its employment practices, and also the broader governance of the business"
He said the conditions were a “red flag”, adding: “We wouldn’t be comfortable that the way in which its workforce is employed is sustainable.”
Despite national lockdowns forcing restaurants to close their doors to the public and the number of takeaway deliveries soaring to record highs, Deliveroo is yet to make a profit.
The IPO flop is bad news for Amazon, which is the biggest institutional investor in the business. Amazon owns just over a 10% of the business. Other prominent investors include T Rowe Price (TROW), Fidelity, and venture capital funds Index and Accel.
It is also bad news for London too. Last month chancellor Rishi Sunak said that Deliveroo was a “true British tech success story”.
“Share prices go up, share prices go down. We should celebrate success in this country," he said.
“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.”
The UK currently pushing to modernise the country's public markets amid concerns that it is falling behind other international markets, notably the US.
Technology has been the biggest driver of stock market growth over the last decade, helping to propel markets in the US to new highs. The UK has struggled to grow big tech businesses that can compete internationally.
Those that have reached significant scale have mostly gone to the US to list shares publicly because of more favourable valuations and share rules there.
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