Will Shu, founder and CEO of Deliveroo, could be set to make a fortune when the food delivery disrupter floats in London.
Deliveroo, which is aiming to raise £1 billion from the issuance of new shares, has revealed a price range for its planned IPO which values the company at between £7.6bn and £8.8bn.
Shu holds 6.2% of the company’s stock, which would be worth £500m at that price range. Sky News reports that Shu plans to rake in £50m by selling a portion of this.
Ahead of the IPO price range announcement this morning, the Mail on Sunday quoted two fund managers who said the float was ‘ludicrously priced’ and did not plan to buy any shares as a result.
“They want a high price but the firm didn’t make any money last year,” they said.
Last year, Deliveroo reported a £223.7 million loss, although turnover grew to £4.1bn in 2020 from £2.5bn in 2019.
Professor John Colley, Associate Dean of Warwick Business School and an expert on tech firm IPOs, said: “This valuation of Deliveroo seems excessive for a business which is still many years from profit, especially given that some doubt the home takeaway delivery model can become profitable outside of London.
“The sole basis for this valuation appears to be the immense amounts of cash looking for growth technology stocks.
“Bear in mind the recent Supreme Court finding that Uber drivers are ‘workers’ and have certain rights such as paid holidays and pensions. This finding may well apply to takeaway home delivery too, driving up their costs.
“Ultimately Deliveroo will have to charge customers and restaurants far more to make a profit, but that brings its own difficulties. For restaurants, margins are already narrow. And at what price do customers simply decide to collect their own meals?
“Potential investors should also remember that if this listing is under new stock market rules, it may well be accompanied by founder share rights. That means if the company is badly run there is little shareholders can do to change the board.”
On Monday, Deliveroo reported that GTV – the total value of transactions it processes on its platform – grew 121% year-on-year in January and February 2021, while fourth quarter 2020 run-rate GTV amounted to more than £5bn.
“We are proud to be listing in London, the city where Deliveroo started,” Shu said of the plans to list on the main market of the London Stock Exchange.
“Becoming a public company will enable us to continue to invest in innovation, developing new tech tools to support restaurants and grocers, providing riders with more work and extending choice for consumers, bringing them the food they love from more restaurants than ever before.
“This will help us in our mission to become the definitive food company. We have seen a strong start to 2021 and we are only at the start of an exciting journey in a large, fast-growing online food delivery market, with a huge opportunity ahead.”
The tech giant connects 45,000 restaurants in the UK with customers. Highlighting an ‘enormous market opportunity’, it said of the 21 meals the average person eats in a week, less than one goes through an online transaction.
The firm is giving its customers the opportunity to buy shares.