What to make of Deliveroo’s rough IPO debut

Do European investors put a premium on corporate ethics?


After a lackluster IPO pricing run, shares of Deliveroo are lower today, marking a disappointing debut for the hot delivery company.

A good question to ask at this juncture is why Deliveroo struggled with its IPO during a historically strong moment for tech flotations. The European unicorn listed on the London Stock Exchange, however, possibly placing its public offering in a different climate than recent IPO successes listed in the United States.

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TechCrunch noted on Monday that there were local concerns regarding Deliveroo’s governance and treatment of workers. At the time, however, those worries merely led to a decrease in the company’s IPO valuation.

Why did Deliveroo struggle when it began to trade? Is it suffering from cultural dissonance between its high-growth model and more conservative European investors? Let’s peek at the numbers and find out.

Deliveroo versus DoorDash

To ground us, let’s explore how differently the public markets value Deliveroo and DoorDash. If they are valued somewhat closely, we’ll be able to dismiss the question of whether the British delivery giant is really being treated with more skepticism than its American comp.

Not that we care, really, one way or the other about any single company’s value. But we do care if listing on a European exchange — I refuse to acknowledge Brexit this morning — means that companies valuing growth over profits are going to generate more stick than praise when they list.

So, briefly, here’s the data we need to make our comparison. We’ll start with DoorDash:

  • DoorDash 2020 revenue: $2.886 billion.
  • DoorDash 2020 revenue growth (YoY): 226%.
  • DoorDash market cap: $41.98 billion.
  • Implied 2020 revenue multiple: 14.54x.

And now, Deliveroo:

  • Deliveroo 2020 revenue: £1.191 billion.
  • Deliveroo 2020 revenue growth (YoY): 54.3%.
  • Deliveroo market cap: £5.55 billion.
  • Implied 2020 revenue multiple: 4.66x.

Some caveats: I calculated Deliveroo’s market cap number using the company’s current share price, so it will have changed by the time you read this. And Deliveroo had a higher 2020 revenue multiple at its IPO price, just as DoorDash had a lower one when it debuted; shares of DoorDash have risen since its public offering.

Still, it would be far too simple to say that Deliveroo is trading at a fraction of DoorDash’s revenue multiple, and thus going public in Europe is equine bollocks.

Note, instead, the differential between the company’s growth rates. Deliveroo delivered strong growth at scale in 2020, while DoorDash put up one of the most astounding years of growth we’ve seen in recent memory; it makes sense that DoorDash might enjoy a better multiple than Deliveroo. If the growth premium that the American company has earned — thus far, at least — is correctly valued is up to you.

But what about other factors? Both DoorDash and Deliveroo have dual-class share structures that concentrate power away from regular shareholders, so that’s a bit of a wash. And each company has labor concerns, though in light of the recent Uber decision you could argue that Deliveroo’s are slightly more acute.

At this juncture, I usually try to have a clever way of parsing our way through the thicket of numbers to get to the point. In this case, it’s hard because we’re not really operating in a world of ample comps; SaaS this is not.

Uber is an obvious choice, but it’s not a good fit because of its multiple business units, frankly. So we are left to ask whether Deliveroo’s multiple makes any sense on our own. One thing I was reminded of while prepping this little entry for you was that Deliveroo did manage to effectively double its gross profit last year. And it lowered its losses. A rising take rate and improving overall economics are pretty good things.

So I’ll just stick my neck out: It feels like Deliveroo is getting treated somewhat differently on the LSE than it might have on the Nasdaq or NYSE. That’s not great news for Deliveroo today, or Europe tomorrow.

Why is it being treated differently? Because European investors appear to give more than zero fucks about other humans. Here’s CNBC from a few days ago, when Deliveroo lowered its IPO price range:

The U.K.‘s largest fund manager [ … ] said it probably won’t be involved, citing concerns around the gig economy that Deliveroo operates in and the company’s share ownership structure. Aberdeen Standard and Aviva Investors [ … ] said they’re concerned about Deliveroo workers’ rights, while M&G Investments said it is also planning to skip on the IPO.

It also comes after the Independent Worker’s Union for Great Britain pointed out that some of Deliveroo’s riders can earn less than £2 an hour, while Shu was set to net up to £530 million in the IPO.

Wild. Very un-American in the capitalist sense, if I may.

The Wall Street Journal reported the quote of the week on this matter, citing Cazoo CEO Alex Chesterman saying that going public “in the U.K. is challenging for companies who are investing in high growth,” and that such companies “are better understood by U.S. investors.”

In this case, understanding leads to stronger valuations.

Summing our work today, I’d reckon that the European stock market push to retain more domestic IPOs on its local exchanges took a blow today. I’d also throw out there that while a rising tide can famously lift all boats, a highly visible IPO miss can scupper everyone’s morning cupper.

Not a great day.