Food delivery giant Deliveroo has announced that it is seeking a valuation of up to £8.8bn when it starts selling its shares on the London Stock Exchange (LSE) this month. The minimum expected valuation would be £7.6bn.
The London-based digital delivery service revealed it plans to sell its shares at a price of between 390p and 460p – which would make it the biggest UK share listing since 2013.
Demand during the pandemic for its service has increased 121% when compared to the previous year.
“We are proud to be listing in London, the city where Deliveroo started,” Founder William Shu said in a statement Monday.
“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.”
Customers who have placed at least one order with Deliveroo will have a chance to buy shares in the business – with ‘loyal’ customers able to buy more.
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.”
Top three IPOs to watch out for this week
With a number of IPOs expected to be made available this week, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, advises on his top three IPOs to watch out for this week.
This week will see a number of different IPO’s hitting the market and with so many to choose from I have outlined my top three IPO’s to watch out for this week. ACV Auctions, DigitalOcean, and Vizio operate in different sectors and each bring something unique and innovative to the table,” explains Maxim Manturov, Head of Investment Research at Freedom Finance Europe.
ACV Auctions has gathered a lot of interest in the automotive industry since its inception in 2014. The company provides a digital marketplace for wholesale vehicle transactions and data services that offers transparent and accurate vehicle information for customers. It is the first software start-up in Western New York to be valued at $1 billion, making it one of just over 500 unicorn companies in the world. This is no surprise considering it has facilitated over 750,000 wholesale transactions between 21,000 dealers and commercial partners. Last year it revealed it took in a revenue of $208m and with an expected share price ranging between $18-$20 it is a great company to keep an eye on this week.”
DigitalOcean, a digital cloud provider, is another company I advise to watch out for this week. The company is looking to raise up to $775.5 million when its IPO goes live on March 23rd and is expected to price between $44 – $47 per share.
Unlike the top three cloud providers – Amazon Web Services, Google Cloud and Microsoft Azure – DigitalOcean provides its platform and tools to developers, startups and SMEs. By targeting these smaller organisations it is able to provide a simple offering in a market that is clouded by larger players providing heavily complex products which are often difficult for small businesses to navigate. This might explain why it attracts five million monthly unique users to its website.”
My final IPO to watch out for this week is Vizio, which is expected to hit the market on March 24th. The Californian based consumer electronics brands is predicted to price between $21 – $23 per share. Vizio makes smart TVs and soundbars and has developed a smart TV operating system, SmartCast. Since its inception in 2002, the company has sold 82.2 million televisions and 11.8 million soundbars, making it a major player in the affordable TV and sounds equipment market.
One interesting point that caught my attention was that it had net income of $102.5 million on revenue of $2.04 billion in 2020, compared with earnings of $23.1 million on revenue of $1.84 billion in 2019, showing its popularity during the pandemic. Looking to the future Vizio aims to increase its capitalization and financial flexibility through the IPO while also using the net proceeds for general corporate purposes, including working capital, operating expenses and capital expenditures.