In this March 31st interview, two financial commentators discuss Deliveroo’s London Stock Exchange debut, which fell about 30% on the first day of trading. They examine why the IPO was priced aggressively at the low end of its range, noting that the valuation (5‑6x revenue) was higher than peers despite a $225 million pre‑tax loss in 2020. The conversation covers Deliveroo’s competitive pressures from Uber Eats, Just Eat, and niche grocery‑delivery apps, as well as the pandemic‑driven surge in food‑delivery demand and the potential for lasting changes in consumer expectations for instant delivery. They also explore the gig‑economy labor model, the looming IWGB strike, and parallels to Uber’s worker‑rights controversies, highlighting how regulatory scrutiny could affect profitability. The hosts debate the consequences for the underwriting banks (Goldman, JPMorgan, BofA, Citi, Jefferies), concluding that despite the sharp drop, banks are unlikely to face serious repercussions, and that many tech firms may prefer SPAC routes to avoid the traditional IPO price‑discovery process. The interview ends with a brief wrap‑up and a nod to an upcoming IPO simulation the guest is running.
Chapters
Okay, very good morning. It's March 31st and we just had Deliveroo debut on the London Stock Exchange and they're down as much as 30%, 3-0. So Eddie, what's going on with Deliveroo?
Yeah, nice to be on with you again, Ant. Frequent occurrence nowadays. But, um, yeah, I, uh, I funnily enough I actually ordered something from Deliveroo last night, so Very interesting to see them IPOing today in London as well. So it's a big coup for London where usually you see these big tech IPOs in New York and Hong Kong, Shanghai. So it's a big testament to Rishi trying to attract some UK and European-based startups, really. Well, Deliveroo is not a startup, but tech companies to IPO here. But unfortunately, they were down as much as 30% this morning in opening trade. So not a great debut from them. They do face really stiff competition, really, from Uber Eats, Just Eat, and then some niche grocery apps— Gorillas, Getir, etc. But yeah, they, they actually priced at the very lower end of their range, and this was revised anyway, so it's not looking good basically shows that the bankers— and this is Goldman, JP Morgan, Bank of America, Citi, Jefferies— they were the, excuse me, the joint book runners on this deal. They've priced it seemingly too aggressively for investor appetite.
Yeah, I think I was reading a stat, I was just trying to find it. I think there's been 5 London IPOs so far this year, and this is the first one that's really flopped like this.
Yeah, I think some commentators this morning are talking about like, this is, you know, not a good sign for London, and this is why I, you know, company shouldn't, uh, IPO in London. I don't really think that's the case. I think— I don't know if you remember, I think it was, uh, you and I had the conversation about, you know, Airbnb, and then I can't remember the food delivery service that IPO'd just, um, in America. But you, you were saying, should you invest in either of those? And I'm saying I prefer an Airbnb to that delivery company just because look where we are. We're in a COVID pandemic, or hopefully we're emerging out of it, but this is really the best they're going to get. Everyone's at home ordering food. You can't go to restaurants. And like we've talked about, you've got this wall of money, especially in the service sector. Savings have been increasing dramatically, and we're ready to go. We're ready to go to these restaurants, we're ready to spend money, we're ready to go back to the office in some capacity and order from Tesco's or the little food deliveries. We'll go and walk there in the city of London, whereas now you want dinner, you want lunch, you're going to just order it on your phone.
One thing that I just wonder, longer term behaviorally, I mean, one thing the pandemic— I think you're right, I think there's definitely pent-up savings that's going to be spent and people are just eager to have that physical kind of environment again. But one thing is that people have really consumed, let's say, that immediacy of what Amazon Prime gives you, let's say. And our consumers now are going— because when I went to Sainsbury's the other day, there's Deliveroo, a big fat sticker on the front. And it's like, oh, hang about. So I don't even need to wait for Ocado or Waitrose to whatever, to Tesco to deliver, over booking a slot. I just get my shopping. Deliveroo can deliver it from a major supermarket. Is that a longer-term— Do you think there's any shift behaviorally in that way given people's appetite for now kind of consumption?
Yeah, absolutely. I think there's definitely— I think Amazon has ruined the whole world, right? That everyone expects minute-by-minute action basically. But that doesn't necessarily mean this is a good investment. That's a secular trend and that will continue to be the case. But actually in this industry, you know, they don't make a lot of money doing that, and the margins are kind of razor thin from food delivery. So it's really, where do I see this going in the future? And some big firms have made big acquisitions, is kind of robotics automation in the sense of restaurants not having chefs. They have robots that then get picked up and then deliver.
Cool. That's a big, that's a big one for the food industry. It is the reality.
Yeah, well, it's the reality, you know, if a robot can do it and do it quickly.
That's like saying, can a robot make classical music or paint fine art? It can, but is it the same?
Yeah, well, there's always going to be that fragmentation, right? There's going to be Michelin star where you're going to want the chefs, but everything else, do you really want it? But okay, so back to the kind of IPO in terms of why is this flopping 30%? Basically, they've priced it very aggressively. Tech company is common. The comps, you know, they— I think they were trading at 5 to 6 times revenue. Again, another company that doesn't make any profits, so they have to be valued on, on revenue. And this was actually greater than peers, so Just Eat and things like that. So again, it was richly priced from a revenue times basis. They're loss-making, so they reported a $225 million pre-tax loss for 2020. So put that in context, that's a worldwide pandemic, the best conditions you're ever going to get. With that being said, they've got a lot of fixed costs going on, uh, and that is, you know, that is the fixed cost growth is, uh, forecasted to slow. So that is, you know, they need to, like with any company, you need to set up obviously, and the fixed costs there are eroding the, the revenues to a negative profit. But again, this comes at, you know, a gig worker economy type basis. So we saw Uber as well kind of enrolled in this. So at the moment, they don't classify their riders, their drivers, as employees, right? And the IWGB, British union representing gig economy workers, said there's going to be a strike on April 7th And I know Aviva, Rathbones, Legal General, they were citing Deliveroo's lack of profitability, reputation, financial risk. But it's all, it all really comes down to the fact that if these contractors are workers rather than kind of contractors, and there's going to have to be a minimum wage, employee protection.
So is there any parallel here with Uber in the way that they had their worker rights issues? I remember when they Uber debuted, they dumped at the Open at the time. I mean, is there any comparisons there for workers' rights?
Yeah, definitely. I think, look, we've moved to this gig economy where everyone's kind of a contractor, right, a freelancer, and they work for these various big tech companies where they're kind of predominantly— it's a technology company and then there's kind of little people running around doing the day-to-day. But this is going to be common for every kind of gig economy, and there's going to be increasing political scrutiny on this kind of, say, uh, on this kind of, uh, issue. Um, so this is probably why investors, uh, have been a bit, a little bit nervous, uh, in terms of they priced at the low end, uh, of their IPO range. So this means that the investor demand running up in the actual roadshow and the book building process wasn't quite there. Funnily enough, I've actually got my day job. I'm running a big IPO session with a very solid business school, ESCP, today. We're going to be discussing the management roadshow, the book building process. So really looking forward to that. And obviously, this Deliveroo IPO comes at a great time. Yeah.
I mean, what— finally, to wrap this up then, what is the consequence for these guys who ran the book? I mean, is it— is it— I mean, how does it work? Because I don't know, this is not the area that I, I work in and my career has been in. So they have one very mis— let's call it managed or mispriced valuation. Does that then mean that that's a no-go then for future— for future other companies coming to IPO process? Or is it just written off as some reason that they can explain away? Or how is that managed on the the firm side?
Yeah, look, we're, we're still, um, although it dumped 30%, you know, that's a lot of price discovery. That's the macro context, right? Yeah, in terms of the market sentiment, short and weak, all those different types of things. Uh, likely there's going to be no consequences for, for the bankers involved in this. It doesn't, uh, you know, similar to past IPOs, you really need to see the kind of price discovery over the 3 months, 6 months et cetera. Um, but again, you know, should this— may actually now, in my opinion, look again aggressively priced if we all go back to restaurants, they get hit on demand. So in terms of them pricing it too aggressively, nothing's going to be, uh, they're not going to be challenged on this too much. And that's really the case. And this is why a lot of technology companies and real just target companies have been going public via SPACs. Right, to avoid this whole process. And, you know, who knows if they went public via a SPAC quickly, and because that was a— that's an advantage of a SPAC, that kind of the reverse merger process happens very rapidly, whereas, you know, the old-fashioned IPO where investors actually care about financials and there's a lot of due diligence, kind of boring now, that takes a long time. So if they kind of went public via SPAC last year in the COVID pandemic, obviously investors and retail, you know, etc., would be like, wow, this is a great company, you know, this is— yeah, yeah, the pandemic.
Yeah, 6 months too late or 12 months too late, potentially.
So, uh, nothing will happen to the bankers and, you know, that relationship's there. Let's just get this straight, the CEO, uh, is going to be a very rich man regardless. Um, but you actually, you know, it dumped on the first day of trading, but this may be the macro environment and actually the trading conditions today, this week, this month. But really you can't determine until maybe 3 months, 6 months. You do need to give the price discovery process some time to breathe, really.
Okay, well, great. Look, I know you're busy. I know you're running that IPO sim later. So good update. And yeah, it seems like we're doing this on a daily basis from now on.
