Retail investors don’t appear to have lost their appetite for Deliveroo despite the severe bout of indigestion suffered by the company when institutional investors began trading last week.
By the end of the day yesterday, shares were down by 28% from the IPO price, but this morning Deliveroo shares a surge of interest from retail investors, who could buy in for the first time saw the company gain 4% before falling back slightly.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown commented “This will be some comfort for Deliveroo customers who were encouraged to buy a slice of the company but appeared to have thrown the dice on a disastrous debut. Like a fateful round of Monopoly they were locked out of selling their shares for a week, while the company’s initial valuation fell sharply. Now they finally have a ‘get out of jail’ card, but it seems for now that many have kept it in their back pocket, waiting it out for prices to stabilise. Total market trading volumes are pretty much unchanged from yesterday.”
A volatile trading period following an IPO isn’t unusual and we would always encourage investors to have a long term strategy, and not invest in shares for speculative short term gain. However, it is clear that IPOs should offer a much more level playing field from day one for all classes of investors.
Although opening up IPOs to more than institutional investors is welcome, a regular retail offering usually offers a better solution, allowing retail investors to begin trading from day one, via their stocks and shares accounts.
IPO pricing
More accurate pricing is crucial to maintain retail investors enthusiasm for IPOs going forward. The offering, at £3.90 a share, gave Deliveroo a valuation of around £7.6 billion, sharply above its valuation of around £5 billion in January following an investment round, yet there had been no fundamental improvements to its prospects. Instead the floatation came at a time of increasing concerns surrounding its gig economy model and the expectation that the easing of Covid restrictions could lead to an initial downturn in business.
Streeter added “The shift to online ordering is unlikely to fully unravel and Deliveroo’s positioning as a service for premium restaurant brands could still give it the edge over some of its bitter rivals. Its foray into the grocery business could also help it prove more resilient, but questions remain about whether the company will be forced to make changes to its contractor model in the future and the extent to which that would affect its profitability prospects.’
