Deliveroo ‘went public’ and listed on the London Stock Exchange this week. But, the Deliveroo IPO didn’t go quite to plan – or that’s how it seems at least.
But, what actually happened and is it a victory for ethical investing or simply a business decision?
This post will cover:
- What happened with the Deliveroo IPO?
- Was it all about ethics?
- What about the business case?
- What might the future of ethical investing look like?
- More information about ethical investing
What happened with the Deliveroo IPO?
Deliveroo decided to list on the London Stock Exchange, which means investors – from professional fund managers to ordinary people like you and me – would be able to buy shares in the company.
Originally, the company was looking to get between £3.90 and £4.60 a share, but hoping for closer to the top end of this range.
With prominent fund managers deciding to steer clear, it ended up listing with shares priced at £3.90 apiece, valuing the company at £7.6 billion – £1.2 billion less than if shares were valued at £4.60.
Deliveroo cited “market volatility” for this price reduction but unions and campaigners are claiming a victory.
But, the drama didn’t stop there. Since listing, the share price has continued to drop, with a few fluctuations, and is currently at £2.82 – dropping the company’s value even further.
It’s not unusual for companies price to drop when they first list. Back in 2012, Facebook’s share price fell when it first listed. Now, investors that held onto their stock could have made returns of over 88 percent.
So, it’s really not all over for Deliveroo just yet…
Was it all about ethics?
The optimist and the ethical investing champion in me wants to believe the price drop is all about ethics.
Deliveroo does appear to have many questions to answer about its work practices and how it treats its staff.
One question is about how it pays its riders – the people delivering the food.
A survey of thousands of invoices by the Bureau of Investigative Journalism found that the lowest-paid rider earned as little as £2 an hour, and one-third earned less than minimum wage.
Deliveroo disputes the numbers, claiming that pay averages £13 an hour at the busiest times and that satisfaction among risers has never been higher. Sub-minimum wage rates are not illegal, because Deliveroo classifies riders as contractors, not workers.
This classification in itself is an issue.
Uber had a similar issue, which ended with the Supreme Court ruling against them.
This ruling effectively gave Uber drivers a 15 percent pay rise – 12 per cent holiday accrual and 3 per cent pension contributions. They will also be guaranteed the national minimum wage for the time they have passengers in their cars.
This ruling doesn’t apply to any other companies, but it’s certainly possible that some investors might have been put off by this, thinking a similar ruling could well be made against Deliveroo. There’s a high chance this would only serve to increase the company’s losses.
What about the business case?
There are strong business arguments for not investing in Deliveroo too, and I’m sure fund managers and investors are not blind to them.
Firstly, Deliveroo is a loss making business. In 2020, the company posts an underlying loss of £223.7 million. This isn’t unusual for new firms – Deliveroo was founded in 2013 – it is a worry for investors.
If there aren’t any profits, there won’t be any dividends. The share price could also decrease if the company’s value doesn’t increase and other investors don’t want to purchase shares.
Lots of companies are loss making to start with, so why is Deliveroo worrying investors?
Firstly, the restaurant delivery market is saturated. Companies like Uber Eats and Just Eat are doing exactly the same thing, while a lot of takeaways, like Domino’s and Pizza Hut, offer their own service.
Also, the past year has been arguably the best on record for delivery services. Restaurants have been closed for a lot of the past year. People have probably ordered out more in the past year than they ever normally would.
If a delivery service can’t turn a profit in the past year, it may well raise some concerns. More concerningly, it is still a long way from a profit. Over £200 million isn’t really a near miss!
What might the future of ethical investing look like?
If unethical business practices become less attractive does it really matter whether investors are turning away for ethical or monetary reasons? If the end result are better working conditions and a healthier planet, surely it’s a good thing.
Previously, ethical investing has mainly focused on climate change and reducing carbon emissions. This is really important and we should still look at this, but investors are starting to discover another strand of ethical investing.
Companies are now having to address their social impact too. How do they treat their employees? Many investors are now looking at salaries, pension benefits, and working practice. Many people are no longer comfortable investing in companies which don’t treat their employees fairly.
Another aspect to social impact is a company’s diversity efforts. Do they make an effort to employ a diverse range of people?
Gender balance, LGBT+ representation and BAME representation are all important things to consider. Investors want to know a diverse range of voices are being heard and treated fairly.
More information about ethical investing
If you’re interested in ethical investing and want to hear more, there’s a lot of posts about it on this blog. From money saving tips that will save the environment too, to how to make your savings work as hard for the planet as they do for you, there’s a lot I’ve covered.
If you found this post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences. What are your thoughts on the Deliveroo IPO? Are you a fan of ethical investing or do you prefer to focus solely on profits?
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