What went wrong?
No one individual factor caused Deliveroo’s stock to plummet. Instead, the firm’s catastrophic primary listing was as a result of many unfortunate circumstances.
When an IPO fails, it is common that the first instinct is to look inwards for answers. Indeed, Deliveroo’s unprofitable business model was a cause for concern. When every food delivery that Deliveroo coordinated ended up chipping away at the company’s balance sheet, it is of course difficult for potential investors to be overly excited. (9)
The recent court ruling concerning The employment status of Uber drivers compounded the structural issues within Deliveroo as it added regulatory pressure on the company. The popular taxi company must now recognize its drivers as employees of the firm, as opposed to being considered self-employed, and hence must provide benefits and protections under the same regulations that any other firm would. This strikes a question mark over the gig economy as a whole, as many businesses have used their large networks of “self-employed” workers as a method of keeping operating expenses down. (10)
Pointing out the limited rights given to Deliveroo couriers and the regulatory risk that this poses, many institutional investors announced that they were not interested in investing in the firm’s IPO. With the added costs of providing employee benefits and protection for its couriers, labour overheads could be increased by up to 30%, generating a bleak outlook for the firm’s future profits. (11)
As is always the case, market setting has a large role to play in the success of a company’s debut. Following the widespread release of vaccines and the resumption of restaurant dining seemingly etching closer, investors seem to be noticeably less keen to invest in online delivery services. Many predict that the heavy demand for online deliveries will be reduced without the help of lockdowns. DoorDash, which closed 86% above their IPO price on the first day of trading, has subsequently fallen by 24% this month. (12)
Timing is so important in the world of public markets, and the ship had sailed for the prospect of a successful IPO for Deliveroo. With increasing regulatory pressures and the sustainability of its business model at risk, it seems that the juggernaut of the food delivery industry now has larger issues to worry about.