What led to failure of Deliveroo's IPO, Its First Quarter Results and Expansion Opportunities in New Market

Deliveroo, an online food delivery company, on March 31st 2021 went public and raised £1.5bn at a price of £3.90 by offering 384m shares, a combination of new shares and sell-of by its existing investors. On the first day of trading Deliveroo’s shares tanked to £3.31 by seeing 15% depreciation and closed its first day 30% down at £2.73.

What Caused the Failure of one of the most anticipated IPOs on London Stock Exchange?

For an IPO, the timing to enter market matters a lot and Deliveroo missed that sweet spot, during Feb to March there were many Tech sell offs in the market as Nasdaq hit its lowest level in March not seen since December 2020 and ended the march by 5% down from its 2021 peak. Investor’s tension about gig-workers after Uber’s 70k drivers were classified as employees in UK made them worried that this might be the start and it could push the Deliveroo not to be profitable for more than expected years. The reopening of the economy also pushed that sentiment among investors as the growth expected (demand pull forward effect) in coming years happened in 2020, resulting in slow the growth for the start up in coming years for its online food delivery market. Deliveroo was valued at 4.5 times of its last year revenue while Just Eat was trading at 2.8 times of its 2020 revenue. Though its US rival DoorDash was trading around 15 times of its revenue but it has increased its y-o-y revenue at 198% and the growth has been attributed to Stimulus Checks US government has been paying to revive the economy while such kind of program has not been in effect in its biggest UK market.

Deliveroo’s Presence in Online Food Delivery Market and First Quarter Results as a Public Company

In 2020, Europe’s online food delivery market was worth $13.8bn and is expected to grow at a CAGR of 5.83% to $20.27b, Deliveroo had a 3rd highest market share of 26% in UK which is its biggest market and accounts for almost 50% of its revenue. Deliveroo shares are trading at 40% down from its opening day £3.90. The first quarter results have been impressive for Deliveroo as it saw 130% y-o-y growth in its GTV(Gross Transaction Value) but is expected to be down for the rest of year. It has made itself almost adjusted EBITDA positive. Its new investments in new technology, locations and online grocery delivery market could prove to be one of the big things for Deliveroo but it would mean that it would lose profitability in the near term.

Deliveroo’s Next Big Bet – Online Grocery Delivery Market

European online grocery retail market is expected to reach $110bn by 2027. UK, France, Spain, Italy, Singapore and Australia markets are expected to grow at more than 8% CAGR with exception to Spain and Singapore which are expected to grow by more than 14%, these are the markets that account for approximately more than 80% of Deliveroo’s revenue and already strong presence in these markets could benefit Deliveroo in acquiring market share for online grocery delivery market, where Deliveroo is making its next big bet. It has already partnered with Aldi, Carrefour, and Sainsbury across Europe.

There is still plenty of room available for business to grow and rapid expansion into fast growing geographies and markets could prove to be Deliveroo’s another streak of revenue growth which has been going down for years, though the profitability still remains a big IF or WHEN for Deliveroo as expansion and investments would lead to new costs. After trading at 40% lower than its IPO opening the appreciation could be expected as the underlying value for business still remains intact, which could give its share a boost and probably early retail investors, who invested around £50m and were left with big losses, a relief.

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