Why was the Deliveroo IPO so bad?

The· Deliveroo (LSE: ROO) IPOs have proven to be one of the worst in recent history.Stocks of food delivery companies were floating in London Stock Exchange Issued on March 31 Price 390p. After that, the price plummeted by more than 30% to 271p. As I write, it rose to 282p — it’s still a tough loss for investors who grabbed early stocks.

History of Deliveroo

Founded by William Shu in 2013, the online distribution service is a giant in its market. It’s still running in the red, but in recent years it has boasted encouraging growth in line with Shu’s strategy of investing cash in expanding its business and scope.

Losses in 2020 reduced by 40% to £ 224m in the first two months of 2021 trading Double year-on-year.. This seems to be encouraging for growth investors, but there are several important reasons why IPOs have seen stock prices fall.

Why Deliveroo IPO failed

First, IPOs couldn’t have come at a worse time. The UK economy is finally open and restaurants and pubs are set to open on April 12. Food delivery services such as Deliveroo were able to take advantage of lockdowns because people wanted to deliver restaurant-quality food to their homes. But this is not the case at the time of the week, as people are eager to eat out. With this in mind, the IPO seems to be untimely.

In addition to this, March 31st was the last day of the first quarter of 2021. This is a very important time for fund managers. They tend to review their portfolios and rebalance their positions. Sure, it’s not time to dive into a volatile investment like an IPO.

There is also Ethical issues Behind this IPO.Many top institutional investors, including Legal & General, Aviva,and BMO Global It has announced that it will avoid an IPO due to the poor treatment of workers. According to an investigative journalism survey, one-third of workers are paid less than the minimum wage. This is primarily due to Deliveroo’s zero-hour contacts and “flexible” payment structure. Many long-term investors take this into account. They are looking for more than just a profitable business. They want a solid ethical approach.

The final reason for the terrible Deliveroo IPO is the company’s reputation. Float was projected to increase Deliveroo’s total value to £ 7.6bn. Subsequent declines in stock prices have significantly reduced this by £ 1.2 billion. A market capitalization of £ 7.6 billion means the company is worth 6.4 times its previous year’s revenue.This seems pretty steep considering the rivals Just eat Takeaway.com It is valued at only 4.8 times the revenue.

So why did stock prices start to rise again after they plunged in all these negative situations? Well, Deliveroo is a growing business and has great potential. One of the plus points is the announcement that it will expand its grocery delivery service throughout 2021. This is the fastest growing part of the business. The expansion will deliver more groceries to 125 towns and cities, for a total of 300 in the UK. It can help drive profitability.

That said, poor timing, worker rights issues, and valuation bias meant that this IPO would always face difficult situations. For now, we will not add Deliveroo shares to our portfolio.

Dylan Hood does not have a position in any of the shares mentioned. Motley Fool UK recommends Just Eat Takeaway.com. The NV views expressed by the companies mentioned in this article are for writers and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by examining different insights, Better investors than us.