Amazon-backed food delivery app, Deliveroo, is angling to follow in the footsteps of its US counterpart in launching its own IPO. With mounting rumours of an early 2021 arrival, just how big can Deliveroo get after going public?
As is the case with many Wall Street tech flotations, Deliveroo is currently a loss-making entity that amassed a deficit of over £300 million in 2019 alone. While the company claims to have traded profitably at an operating level throughout 2020, prior to the Coronavirus pandemic, the company was heavily dependent on the support of Amazon’s investment.
The disruptive influence of the COVID-19 pandemic came at a good time for Deliveroo. With more households entering lockdown and individuals unable to physically visit their favourite restaurants, takeaway orders rocketed over the past year.
Despite a clear and largely sustained level of growth in the use of takeaway deliveries, one of the main challenges that Deliveroo faces comes from competitors in the form of Just Eat and Uber Eats across the UK.
So, just how appetising is the prospect of a Deliveroo IPO for investors? And could going public help the delivery innovators to steal a march on the competition?
Preparing for delivery
Although Deliveroo’s IPO date hasn’t yet been announced, it’s expected to occur in early 2021 – with more information set to be revealed soon.
Recently, a pre-IPO fundraise of $180 million was raised by the company as a means of rolling out Editions kitchens globally, expanding the company’s grocery delivery repertoire, and developing its Plus subscription service to new locations.
Interestingly, it’s believed that Deliveroo’s IPO may return a value of over $13 billion. This figure goes some way in eclipsing the IPO of Just Eat in 2014, which was valued at $2.4bn.
Although some onlookers may be licking their lips at the prospect of an IPO for the delivery leaders, the IPO will only be available to institutional investors.
Yet, there are opportunities for retail investors to still take part in the IPO, with some services opening the door for users to apply and participate. For instance, Freedom Finance Europe offers IPO participation for some listings to the general public, possibly including that of Deliveroo. Though, there’s an application process to go through and a threshold of at least $2,000 is required.
More traditional brokers like TD Ameritrade and Fidelity also offer IPOs for users, however, the threshold is generally higher. With Fidelity, you must have at least $100,000 to $500,000 in household assets while TD Ameritrade requires your account to be at least $250,000 in value.
That said, much of the general public will be required to wait until trading begins on the London Stock Exchange before they can buy shares in the company.
Deliveroo has reason to covet a more time-sensitive IPO release. With UK lockdown restrictions set to be eased throughout the spring and summer months, the company may be tempted to go public before June to ensure they do so whilst still backed by their strong performance in the wake of social distancing measures.
The anatomy of a Deliveroo IPO
Deliveroo’s mooted listing plays into the wider trend of increasing numbers of IPO investments entering the market of late – with much of the interest coming from retail investors. For instance, when Airbnb went public recently, its initial $68 listing climbed to $144.71. However, such widespread excitement seemingly surrounding tech-based and eCommerce stocks run the risk of investors finding themselves operating in a bubble that may soon burst.
One notable comparison to draw on when imagining what a Deliveroo offering could look like is to look at the case of the DoorDash IPO in December 2020. When the US delivery company went public, its share price rose by 86% to a total market value of $60 billion.
However, despite its resounding entry into the market, the excitement around DoorDash appeared to mask its fundamentals. Although the company represents 50% of the total order value in the US, DoorDash reportedly made a net loss of around $667 million in 2020 according to its most recent full-year results.
This level of transparency will also apply to Deliveroo – and the company will need to be clear about the amount of money that it’s losing. In 2019, Deliveroo’s losses rose to £317.7m, despite a 62% rise in revenue towards £771.8m. As a result, the company has claimed to have turned an operating profit in the majority of its markets throughout much of 2020 – a claim that will come under the spotlight when it comes to publishing investor reports.
Eventually, as the furore surrounding the Deliveroo Initial Public Offering dies down, investors will begin casting their minds towards the next big investment opportunity. This is another hurdle that Deliveroo will need to overcome. Since going public, DoorDash is down 3%, while Airbnb’s price is up by 29%. Although this shows that some listings can consistently rise, it’s important for investors to know that it’s unlikely for the excitement concerning Deliveroo’s IPO to be sustained into the future. In this bloated tech market, there’s plenty of volatility for investors to navigate through.
Deliveroo is a well-known company that provides a service that many prospective investors are likely to have used. With such a popular name entering the IPO mix, a buying frenzy could well take hold, but investors should exercise caution and conduct their research before anticipating exponential stock appreciation.
Investing in success
Despite legitimate concerns about the long-term performance of Deliveroo’s IPO, the company has reportedly secured the help of four large investment banks to better help it to prepare for its Initial Public Offering.
As Deliveroo’s listing is set to be one of the largest to hit the London stock market in 2021, the company appointed Bank of America, Merrill Lynch, Citi and Jefferies and Numis to help brace the firm for the float.
To further bolster the company’s growth into exchanges, Deliveroo announced in January that it plans to expand its services across 100 new towns and cities over the course of the year.
Fundamentally, the timing of Deliveroo’s expected IPO couldn’t be much better. The company has experienced a year of sustained growth due to the chaos caused by the Coronavirus pandemic. Today it’s looking to tap into an excitable market filled with investors looking to turn profits on the next exciting technological innovation.
Deliveroo has shown time and time again that it’s at the forefront of innovation, now it just needs to show the London stock exchange that it’s got the staying power to deliver on its potential.