Deliveroo was little more than a takeaway food app employing an army of kamikaze moped drivers on zero hours contracts – Britpix / Alamy Stock Photo
London’s dwindling prospects as a global financial centre are the subject of endless agonising. Together, ministers, regulators, entrepreneurs and prominent business figures are desperately hunting for ways to halt the City’s seemingly endless decline – with little, if anything, to show for their efforts.
The elephant in the room that few seem prepared to acknowledge is the number of stock market duds that the capital has served up, burning countless investors in the process.
Those left out of pocket often include individual retail shareholders who can’t afford to see their wealth so recklessly eroded. Yet the Government seems genuinely puzzled as to why fewer people are investing in the markets.
Until the quality of companies going public drastically improves and advisers stop wildly over-selling the prospects of what are too often average stocks, London’s demise will continue. Those that are heavy on hype but light on substance will not lift Britain’s standing in the eyes of foreign or domestic investors. On the contrary, they simply inflict further damage.
Good riddance then to food flop Deliveroo as the company’s lightweight board predictably prepares to take the easy way out of its short-lived yet disastrous stint on the stock market. Accepting a low-ball, opportunistic takeover bid from US rival DoorDash is a pretty clear admission that Deliveroo’s brief time as a quoted company has been a massive failure.
And frankly, who can blame management for embracing any chance to escape the public markets after such a woeful experience? Investors who snapped up shares in Deliveroo when it listed four years ago naively allowed themselves to be fooled into believing that they were getting a slice of one of Britain’s most promising technology pioneers.
Instead, they unwittingly backed one of London’s most over-hyped companies. Among the steady stream of duds that the City has served up, Deliveroo surely takes the wooden spoon for the biggest omni-shambles in recent memory.
The company’s prospects were so over-egged – shamefully even by Rishi Sunak, the then chancellor – that its shares were still trading at less than a third of their 390p float price before the approach from DoorDash was announced after markets closed on Friday.
Indeed, apart from the briefest of rallies Deliveroo’s share price has never recovered from the extraordinary slump it suffered from the outset after being horribly mis-priced.
Almost £2bn was wiped off its initial market capitalisation on the first day of trading, leaving it 26pc off its listing price – an opening day performance that made it the worst London debut in at least two decades, according to data provider Dealogic. Even one of the company’s bankers was quoted as it was “the worst initial public offering in London’s history.”
The mega-flop was made all the more stark by the clamour among investors to buy into its big rivals around the same time, including suitor DoorDash. Its shares had surged by 85pc in its Wall Street debut just four months earlier.
Partly, the company benefitted from beating its rivals past the post and, in doing so, faced less scepticism about the extent to which it was largely a beneficiary of a temporary lockdown lift. By the time Deliveroo pressed the button, it was a race against time to get the float away before the third lockdown ended, the pubs and restaurants quickly filled up again and takeaway orders dried up.
A delay of just weeks and Deliveroo almost certainly wouldn’t have seemed so appetising. Indeed, the following month, Will Shu, its founder, was simultaneously telling shareholders he was “delighted” with trading while warning of “the uncertain impact of the lifting of Covid-19 restrictions”.
There were so many red flags that Deliveroo should become a case study in what to avoid when investing in the stock market, not least its long history of failing to make money.
Even when government Covid restrictions were in place, a company billed as one of the biggest winners of lockdown posted a loss of £224m. It explained why this was a business that had gorged on £1.3bn of private capital in the intervening years but sadly not how it could justify an indigestion-inducing £7.5bn valuation sought at float.
Despite being one of the most popular delivery apps in the UK with 7.1m active users, it wasn’t until last year that Deliveroo recorded its first annual pre-tax profit in 2024 – a mere £12.2m at a company that generated £2bn of turnover.
Perhaps there’s an inverse relationship between the amount of meaningless spin to be found in a company’s float prospectus and how its shares perform. After all, this was a company that boasted it was “all about food”, “customer-obsessed” and “at the start of an exciting journey”.
Will Shu, Deliveroo’s founder, warned investors of ‘the uncertain impact of the lifting of Covid-19 restrictions’ in April 2021 – Aurelien Morissard/IP3
But then its claims of great technological prowess were always a triumph of marketing over reality. Indeed, far from being at the forefront of 21st-century innovation, Deliveroo was little more than a takeaway food app employing an army of kamikaze moped drivers on zero hours contracts.
Prospective investors should have also spent longer asking themselves who stood to be the biggest winner from an initial public offering. With Shu offloading stock worth around £26m of shares from the offset and his remaining stake worth hundreds of millions more, they were entitled to wonder whether he was benefitting at their expense.
It is entirely fitting then that if Deliveroo falls to a 180p per share from DoorDash – a thoroughly underwhelming 23pc premium to where its shares were last trading before the offer – Shu will pocket £172m for his remaining stake while many of Deliveroo’s early backers will still be out of pocket, including 70,000 customers who bought stock.
How about that for a final farewell? Or the fact that Goldman Sachs, having presided over this farce as one of the main listing advisers, is helping to sell the company at a knockdown price?
In the end, it’s hard not to turn Deliveroo’s record into a lament for London – if supposedly sophisticated investors find it so hard to value what is a fairly unremarkable company, then is it any wonder the stock market appears to be locked in a death spiral?
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