Deliveroo (LSE:ROO) listed on the London Stock Exchange to much fanfare via an initial public offering (IPO) at the end of March. Three months on from this IPO, I want to know what is happening with the Deliveroo share price and whether there are any developments that could tempt me to invest my cash and add Deliveroo to my portfolio. Let’s take a look.
IPO disaster for Deliveroo
Deliveroo’s IPO was arguably the biggest on the LSE since Glencore in 2011. Advised and backed by some of the best banks and law firms, what could possibly go wrong? Well, pretty much everything.
Initially, Deliveroo floated on the LSE with a value of £7.6bn. The Deliveroo share price began at 390p per share but fell like a stone. At the end of the first day of trading, the share price was down 26%, to 287p per share. On paper, Deliveroo’s value was reduced to £5.2bn.
By 7 April, the Deliveroo share price was still approximately 25% below its float price of 390p per share. This was after some favourable Q1 trading results too but more on that later. As I write, I can pick up Deliveroo for 258p per share. I would argue the Deliveroo share price has yet to recover from its disastrous start.
Gig economy stocks are booming
Deliveroo is one of a number of stocks that has benefited from the gig economy boom. There are three things I like about Deliveroo which have alerted me to examining the Deliveroo share price. First, its rapid growth story is impressive. Developing into a multi-billion pound firm from humble beginnings in 2013 is admirable.
Next, it is still founder-led. Will Shu founded the company and is still a major shareholder. Research indicates founder-led firms can be good investments. I believe Shu’s interests will align with those of shareholders, which can only benefit everyone involved.
Finally, recent results were impressive. For Q1 2021, Deliveroo reported group orders of £71m which is an increase of more than 110% year-on-year. Gross transaction value (GTV) was reported at £1.65bn which is up approximately 130% year-on-year. It also reported its monthly active customer base had grown over 91% year-on-year to 7.1m active consumers on average during Q1.
My verdict on the Deliveroo share price
Would I buy Deliveroo shares just now? The short answer is no. Deliveroo is generating substantial losses despite its growth. In 2020 it reported a loss of £224m. In 2019, it reported an operating loss of over £300m. As a rule of thumb, I am bearish on unprofitable companies for my portfolio, despite growth. As well as financial losses, Deliveroo faces stiff competition from the likes of Just Eat and Uber Eats in what is becoming a saturated market. Currently I cannot find a unique selling point for Deliveroo.
Overall, I believe the Deliveroo share price is underwhelming as it was overpriced to begin with. Of course, firms can have a disastrous IPO and still flourish longer term. A prime example of this is Facebook. For that reason, I will keep an eye on developments.
