Yahoo Finance Deliveroo IPO slump burns 70,000 retail investors
Watch: Amazon backed Deliveroo slumps in trading debut
Tens of thousands of retail investors who invested in food delivery startup Deliveroo's (ROO.L) initial public offering are facing heavy losses after the company's share price collapsed on its first day on the stock exchange.
Deliveroo raised £1bn ($1.4bn) selling shares as part of the process of listing on the London Stock Exchange. This process of raising money is known as an initial public offering (IPO).
IPOs are usually only open to institutional investors like pension funds and asset managers but Deliveroo let its customers and the general public invest through a platform called PrimaryBid. Around 70,000 individuals put £50m into the company.
Deliveroo sold shares at 390p in its IPO but the company's share price promptly sunk 30% on Wednesday when the stock was officially listed on the London Stock Exchange. Shares were still more than 25% lower by mid-afternoon, changing hands at 285p. Russ Mould, investment director of AJ Bell, said Deliveroo "could prove to be a high-profile turkey."
READ MORE: Deliveroo shares plunge on London stock market debut
Mould said the slump could have been caused by "stags" — City parlance for speculators looking to make a quick buck.
"I guess a lot of people were hoping it would be a hot issue so they could stag it, bank a quick gain after the first day ‘pop’ and move on," he said. "Once the deal priced at the bottom end, the chances of a quick turn were slim and it is possible that would-be stags have just run for cover and sold while they could."
The share price slump means the tens of thousands of retail investors who backed Deliveroo are now sitting on heavy paper losses.
Wednesday marked the start of conditional dealing for Deliveroo shares, which means only institutional investors can buy and sell the stock. Retail investors must wait until the start of unconditional dealing next Wednesday to make any adjustments.
READ MORE: Deliveroo IPO flop deals blow to London's tech ambitions
The price slump is bad news for Amazon (AMZN), which is the biggest institutional investor in the business. Amazon owns just over a 10% of the business. Other prominent investors include T Rowe Price (TROW), Fidelity, and venture capital funds Index and Accel.
Deliveroo's IPO has faced heavy resistance from institutions in the City from the start. Even still, the extend of Wednesday's price fall came as a surprise.
Deliveroo has blamed market conditions for its struggles. The company cited global volatility in the IPO market when it cut its price range ahead of the float. IPOs in the US and Europe have been pricing at the lower end of ranges and several have fallen below offer prices in the days and weeks after going public. Tech stocks, which surged in 2020, have recently been falling out of favour.
"It does feel like some of the froth is coming out of the market," Mould said. "Whether this is temporary or part of a topping process remains to be seen."
A source close to Deliveroo said: "We knew coming into today it was going to be a bumpy ride."
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