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Author: Alan LittleDate: 2021-04-01

Deliveroo (ROO) -13% on market debut as investors balk at gig economy model

Deliveroo (ROO) had a market debut to forget in London on Wednesday as shares closed 13% lower amid investor concerns about the food delivery company’s loss-making and gig economy model. 


The hotly anticipated IPO was set to be a showcase for London’s ability to attract highgrowth tech companies, but it proved to be a damp squib as major investors publicly stated their desire to remain on the sidelines. 


Aviva (AV), Hargreaves Lansdown (HL) and BMO Global (BGSC) were among those that said that ethical reasons would prevent them from investing in Deliveroo. 


The concerns are centred on the company’s worker model, with an investigation by The Bureau Local showing that one rider was recently paid the equivalent of £2 per hour.  


Aberdeen Standard’s head of UK equities Andrew Millington said that “employee rights and employee engagement” are crucial for longterm investors who want both profitability and sustainability.  


The fact that Deliveroo has yet to turn a profit despite rising revenues is also a red flag for some.  


Analyst Neil Wilson noted: “Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability.” 


The negative noise surrounding the listing sent shares 30% lower at one point during the morning. 


However, ROO did recover during the afternoon and closed 13.16% down at 287.45p. 


While the listing was not the “British tech success story” that Chancellor Rishi Sunak had touted, Deliveroo has still generated £1.5bn in proceeds. 


Hargreaves Lansdown’s Sophie LundYates believes that there are reasons to be optimistic about the company’s higherquality restaurant options, compared to rivals such as Just Eat (JET).  


Analysts at AJ Bell concluded that it remains to be seen whether Deliveroo’s initial struggles will be a shortterm issue or not. 


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