Deliveroo, the British food delivery service in which Amazon is the largest shareholder, dropped as much as 30% in its first minutes of trading Wednesday, a gloomy public debut for the company that was promoted as a post-Brexit win for London’s financial markets.
The company had set its initial public offering price at 3.90 pounds a share, valuing Deliveroo at 7.6 billion pounds ($10.4 billion). But it opened at 3.31 pounds, 15% lower, and kept falling. By the end of the day, shares had recovered only slightly, closing at about 2.87 pounds, 26% lower.
The offering has been troubled by major investors planning to sit out the IPO amid concerns about shareholder voting rights and Deliveroo rider pay. Deliveroo, trading under the ticker ROO, sold just under 385 million shares, raising 1.5 billion pounds.
The business model of Deliveroo and other gig economy companies is increasingly under threat in Europe as legal challenges mount. Two weeks ago, Uber reclassified more than 70,000 drivers in Britain as workers who will receive a minimum wage, vacation pay and access to a pension plan, after a Supreme Court ruling. Analysts said the move could set a precedent for other companies and increase costs.
Deliveroo, which is based in London and was founded in 2013, is now in 12 countries and has more than 100,000 riders, recognizable on the streets by their teal jackets and food bags. Last year, Amazon became its biggest shareholder.
Demand for Deliveroo’s services could soon diminish, as pandemic restrictions in its largest market, Britain, begin to ease. In a few weeks, restaurants will reopen for outdoor dining. Last year, Deliveroo said, it lost 226.4 million pounds even as its revenue jumped more than 50% to nearly 1.2 billion pounds.
Last week, a joint investigation by the Independent Workers’ Union of Great Britain and the Bureau of Investigative Journalism was published based on invoices of hundreds of Deliveroo riders. It found that a third of the riders made less than 8.72 pounds an hour, the national minimum wage for people older than 25.
Deliveroo dismissed the report, calling the union a “fringe organization” that did not represent a significant number of Deliveroo riders. The company said that riders were paid for each delivery and earn “13 pounds per hour on average at our busiest times.”
On Monday, shares traded hands in a period called conditional dealing open to investors allocated shares in the initial offering. The stock is expected to be fully listed on the London Stock Exchange on April 7 and can be traded without restrictions from then.