Deliveroo share price crashes on debut, will selling pressure persist?

• The Deliveroo share price fell as much as 30% on Wednesday, before finishing the session at 287p
• Will worker pay dispute cause more damage?
• Want to trade Deliveroo shares? Open an account today.

The Deliveroo (ROO.L) IPO was hotly anticipated in mid-March. Initial projections put the food delivery company’s value at £5 billion, but talk of a 460p share price soon pushed it to more than £8.5 billion. The fervour for Deliveroo shares meant it was set to become the London Stock Exchange's biggest IPO since Glencore (GLCNF.PK) floated in 2011.

Why did Deliveroo fall short of expectations?

However, CEO Will Shu cut expectations on Monday, citing ‘volatile’ conditions for IPOs. The decision to narrow Deliveroo’s share price range to between 390p and 460p came at the same time a dispute over worker pay was in the headlines. A report published by the Bureau for Investigative Journalism claims that riders earn as little as £2 per hour. The revelation appears to have spooked investors ahead of Deliveroo’s stock market debut on 31 March 2021.

Shares opened at 331p on Wednesday, well below the bottom end of the IPO’s projected share price range. The losses quickly piled up, with the Deliveroo share price at one point hitting an intraday low of 271p, implying a ~30% decline from the IPO price. At its intraday low, some £2 billion in value had been destroyed. While the stock would close out its first session as a publicly listed company above that intraday low – it would do so only by a shade. Deliveroo finished out Wednesday’s session at 287.45p – a ways off the ambitious share price range the company had previously targeted.

Despite the rocky start, Shu hailed the IPO as a 'milestone' for the company and the start of a 'next phase' in its existence.

However, some investors remain unconvinced. Concerns over pay mean Aberdeen Standard, Legal and General, and other major asset management companies have backed away from investing in Deliveroo. The issue over worker conditions may only be the tip of a much larger iceberg according to market analyst Neil Wilson. Speaking to City AM, he said the initial drop in value reflects Deliveroo’s ‘questionable path to profitability'.

Is Deliveroo profitable?

Despite transactions on the app hitting £4.1 billion in 2020, a year-on-year increase of 64%, the Amazon-backed company still lost £223.7 million. Wilson sees this as a long-term problem that’s been compounded by issues over pay. Deliveroo workers intend to go on strike on 7 April. This could force Shu to re-evaluate the company’s payment model.

Continued discontent may even lead to intervention from the British government. It’s this uncertainty, combined with competition from Just Eat and Uber Eats, that’s concerning for Wilson and other analysts. Indeed, the question now is whether today’s drop is a short-term blip or a sign that Deliveroo shares are set for more losses in the coming months.

Will Deliveroo shares continue to slide?

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