Image source: Frederik Lipfert @frederikli - Unsplash

What's going on?

Deliveroo’s hotly anticipated stock market debut turned up cold on Wednesday as the food delivery firm’s newly public share price ended its first day down 13% – and left its retail investors most at risk of a one-star experience (tweet this).

What does this mean?

As foreseen in the Finimize app’s exclusive analysis last week, Deliveroo announced shortly before its initial public offering (IPO) that shares would begin trading at the lower end of expectations. Since recent listings have generally launched at the top of their advertised price ranges, that already suggested there was limited investor appetite for yet another food delivery stock.

Deliveroo nevertheless managed to raise $2 billion as planned, starting Wednesday worth $10 billion. But its valuation immediately fell 30% as the stock market opened for “conditional dealing” of the company’s shares. Deliveroo’s shares recovered some ground by the end of the day – but not before trading was briefly suspended in the wake of wild price swings.

Why should I care?

For markets: Investors are backpedaling.

Several high-profile investors have highlighted big risks involved in backing the primarily bicycle-based food delivery company. In the wake of Uber’s enforced reclassification of its UK drivers as “workers”, rather than cheaper contractors, Deliveroo may soon face similarly elevated costs. What’s more, with lockdown restrictions easing and people returning to restaurants, the company’s growth is set to slow. And a chronic lack of profit – another big deliverisk – means Deliveroo may be poorly placed to adapt to potential changes in its regulatory and market environments.

For you personally: Retail investors could get burned.

Spare a thought for those small-time individual investors who were, for once, able to buy directly into Deliveroo’s IPO – but who can’t actually trade their shares until next week. If they respond to Wednesday’s losses by rushing to sell at the earliest opportunity, retail investors could serve up more trouble for Deliveroo’s share price.

Originally posted as part of the Finimize daily email.

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