Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
IPO Watch

Deliveroo IPO set for London launch in coming weeks

Deliveroo IPO: the delivery service is set for launch on London Stock Exchange

After the Moonpig Group and Dr. Martens IPOs in January, the London market looks set for another high-profile launch as online food delivery company Deliveroo gears up to take the fight to Just Eat Takeaway on the London Stock Exchange, as well as the UK delivery market.

Outside the UK, Deliveroo has operations in 200 cities in Asia and across Europe. After declaring its intention to list on the LSE, papers could be filed as early as next week. The launch could be the biggest on the LSE in over a year.

Deliveroo IPO set for high valuation

With its finances only recently bolstered by $180m of new funding from its stakeholders of Fidelity and Durable Capital Partners in January, the company could fetch a valuation of up to £8bn.

Last year the company managed to convince the UK’s Competition and Markets Authority that Amazon’s 16% investment of $575m in its business wouldn’t result in a dilution of competition, however the CMA did reserve the right to revisit the decision if Amazon were to increase its shareholding from its current level.

The initial Amazon investment came about over concerns that the pandemic could drive Deliveroo out of business. These concerns proved to be somewhat wide of the mark and since then Deliveroo’s finances have improved significantly, largely as a result of prudent housekeeping; cutting 15% of its staff andmaking other savings, plus a significant expansion in the online delivery market.

Delivery services thrive during lockdown

When the first lockdown began, Deliveroo experienced a cashflow shock as its three main clients of KFC, Wagamamas and Burger King all closed down temporarily. Once the initial shock of the first shutdown had passed and it became apparent that the only way for a lot of restaurant businesses to survive was by way of delivery apps, the cash tap came back on.

As we look forward to the upcoming IPO, Deliveroo has the opportunity to take on the likes of Uber Eats as well as Just Eat Takeaway, albeit without the deep pockets of Uber, and the scale of Just Eat Takeaway. 

Just Eat is undoubtedly the market leader, having merged with Takeaway.com last year, and having just announced the acquisition of Grubhub for $7.3bn in the US, it has a market cap of over £11.5bn.

Deliveroo ready to take on the competition

Fortunately for Deliveroo it has funding from stakeholders who know the delivery business quite well, with Fidelity and Durable Capital also having stakes in DoorDash, which has seen it’s share price double since the company IPOd in the US at the end of last year.

It has also seen the number of restaurants on its app rise to over 140,000, however its finances for 2020 aren’t particularly transparent given its problems when the pandemic first hit. The company has said that it did see an operating profit in Q2 and Q3, and is profitable in 11 of the 12 markets it operates in.

We know that from its 2019 numbers that the business saw losses of £319m on revenues of £772m.

The commissions that it charges on its app are also quite high, reported to be up to 30%.

If we do see lockdown restrictions start to get eased as we head into the summer months, how many restaurants will be happy to pay up to 30% commission if they are able to start opening their doors again as the weather starts to get warmer?

The upcoming IPO could well raise up to $2.8bn, more than the amount raised by THG last year. Deliveroo intends to use the proceeds to expand to new locations and develop new tools to support restaurants.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.