Deliveroo on Monday confirmed listing plans on the London Stock Exchange after an increase in business during the pandemic. The total value of transactions processed on its platform increased by 64% last year, to £ 4.1 billion ($ 5.7 billion).
But the technology company still posted a basic loss of £ 224 million ($ 310 million) in 2020, raising questions about its valuation. The quote is expected to value Deliveroo at more than $ 7 billion, according to Reuters, but other media reports estimate the target at up to $ 10 billion.
“This assessment of Deliveroo seems excessive for a company that has been for years without profit, especially considering that some have significant doubts as to whether the delivery model for home travel can become profitable outside London,” said John Colley, associate dean from Warwick Business School.
“In fact, the only basis for this assessment appears to be the immense amount of money in search of growing technology stocks,” added Colley.
Pilot rewards
Deliveroo has more than 100,000 passengers and 115,000 food merchants in 12 markets around the world. The company said it created a fund to support restaurants and help them recover from the pandemic. It also aims to give pilots £ 16 million ($ 22.2 million) in bonus payments.
The company said in a statement that “hundreds” of active passengers would receive the maximum bonus, with the highest payments being made to those who completed the most orders in each market. All passengers who have worked with Deliveroo for at least one year and have completed 2,000 orders will receive £ 200 ($ 277). The average payment per eligible passenger will be £ 440 ($ 610). The fund will be launched on the day of the IPO.
“Today, the deal is much, much bigger than I would have ever thought possible,” said CEO Will Shu in a letter released on Monday. “Even so, we sincerely believe that we are still getting started. Our ambitions have increased as we begin to really understand and execute the opportunity that lies ahead of us in online food.”
However, there may be other challenges ahead.
“The Supreme Court’s recent finding that Uber drivers are ‘workers’ and have certain rights, such as paid vacations and pensions. That conclusion may well apply to home delivery for travel as well, increasing their costs,” said Colley .
“Ultimately, Deliveroo will have to charge customers and restaurants much more to make a profit, but that brings its own difficulties. For restaurants, the margins are already narrow. And at what price do customers simply decide to collect their own meals? ” he asked.
The UK government said last week that it would revise rules that prohibit companies with two-class structures from entering the major FTSE indices. Changes are unlikely to be made in time for the Deliveroo listing, but the company may become eligible later if the listing standards are updated.