Britain’s Amazon-based food delivery app, Deliveroo is set to launch an IPO on March 31st. In a growing market littered with well-backed rivals, can Deliveroo achieve market dominance by going public?
It’s a common theme with tech flotations that can be found to be making losses at the time of going public, and Deliveroo has had its own issues with profitability. In 2019 alone, the delivery company recorded a deficit of over £300 million. Although Deliveroo has stated that it’s become profitable through the busier 2020 period due to COVID-19, the company had been heavily reliant on Amazon’s investments prior to the pandemic.
Coronavirus and the extended period of national lockdowns that came with it played a significant role in bringing new business to Deliveroo, and takeaway orders on the app accelerated over the course of the past year.
Although Deliveroo has enjoyed a sustained period of growth over 2020, we can see that the delivery company still only commands around 25% of the UK takeaway market today. This is down to the formidable competition that Deliveroo faces in the form of Just Eat and Uber Eats.
Deliveroo will undoubtedly be hoping that the timing of its IPO will unlock the potential for the company to become a more formidable competitor in the takeaway landscape in both the UK and beyond. But will going public really transfer into a shot at market dominance?
How The Deliveroo IPO is Shaping Up
Deliveroo’s IPO is expected to take place on March 31st. The company confirmed that its IPO will be priced between £3.90 and £4.60 per share. This would value the business between £7.6 billion and £8.8 billion.
One recent pre-IPO fundraise of $180 million was raised by Deliveroo as a means of rolling out Editions Kitchens globally – expanding the company’s reach in the grocery market, as well as expanding its subscription service for new locations.
Though some investors may like the idea of Deliveroo realising its ambitions in one of 2021’s most exciting IPOs, the initial offering itself will likely be limited largely to institutional investors.
Despite this, there will be opportunities for retail investors to get involved in the IPO.
Deliveroo plans to make £50m worth of shares available to private investors. To apply, you’ll need to have a Deliveroo account and to have made at least one takeaway with them. You’ll then be invited to register in the IPO. Investors are eligible to buy up to £1,000 worth of shares in multiples of £250 via Deliveroo’s IPO partner, Primary Bid.
Alternatively, some brokerages are also allowing retail investors to take part. One example is a Nasdaq-listed Freedom Holding Corp. (NASDAQ: FRHC). However, there’s an application process to go through and a threshold that starts at $2,000.
There are also more traditional brokers like Fidelity and TD Ameritrade that offer IPOs to users respectively – though the financial threshold is considerably higher. In the case of Fidelity, investors are required to have at least $100,000 to $500,000 in household assets, while Ameritrade requires accounts to hold at least $250,000 in value.
However, if investors are unable to meet such requirements, they can wait until trading begins on the London Stock Exchange before buying shares in the company.
Things are set to move quickly as Deliveroo looks to launch its IPO during something of a boom time for the takeaway market. With the UK’s lockdown restrictions set to begin an easing process through late march and towards the summertime, the company wants to ensure that their launch is backed by the high performance and optimism that’s accompanying a consumer market operating at its peak.
What The Deliveroo IPO Will Look Like
Deliveroo’s listing follows the trend of more companies choosing to launch IPOs ahead of going public. When Airbnb went public recently, its initial $68 share price rapidly rose to $144.71, creating an example that other tech companies largely dream of following. However, this level of excitement – largely confined to tech or eCommerce companies intending to go public – runs the risk of contributing to an investment bubble that could eventually burst.
When evaluating what a Deliveroo IPO will look like, a strong example can be found in the DoorDash initial public offering from late 2020. When the US delivery company went public, its share value climbed 86% and delivered a market value of $60 billion.
But despite a strong entry onto Wall Street, the investor confidence in DoorDash only served to mask its ailing fundamentals. Though the company is a strong presence in the US market, it recorded a net loss of $667 million in 2020 – according to its most recent full-year results.
It’s important to note that this transparency will also be required when investors look to Deliveroo. In going public, the company will have to be entirely transparent with the losses it’s making. In 2019, Deliveroo’s losses climbed to £317.7 million, despite a huge 62% leap in revenue to £771.8 million. Despite this, the company has claimed that it’s turned an operating profit in the majority of its markets due to the ordering boom of 2020 – but this claim will come under intense scrutiny when it comes to publishing investor reports.
Could Deliveroo Win Investor Confidence?
Any concern regarding the long term viability of Deliveroo’s business model may have been given a boost by the news that the company has secured the help of four large investment banks to help prepare its IPO.
Interestingly, ahead of Deliveroo’s IPO, the takeaway giants announced that it would expand its services to 100 new towns over the course of 2021 – highlighting the clear ambitions of the company to grow.
Although the pandemic has been a difficult time for many businesses, it’s presented itself as an opportunity for Deliveroo to use its newfound order volume and momentum to go public in an era of newfound investor confidence in tech stocks.
Deliveroo’s innovative takeaway delivery background is undoubtedly a draw for investors. In going public, the company finally has the chance to receive the funding it needs to underline its intentions to muscle in further on its rivals.
Dmytro Spilka, tech and finance writer and Founder of Solvid and Pridicto