Appetising? This was more of a big fat Flopperoo
DELIVEROO’S float on the London stock market was one of the City’s most eagerlyawaited events. Investors had hoped shares would soar – but instead watched them plunge by a stomach-churning 30 per cent when trading began.
They recovered a little, but the firm’s stock market debut was, in truth, nothing more than a big fat Flopperoo.
It is certainly an expensive disappointment for founder Will Shu, whose holding is worth far less than he had been expecting – though, admittedly, it is still stupendous.
It is also a let-down for the Square Mile, which is hoping to reinvent itself, postBrexit, as a honeypot for tech companies whose shares have soared during lockdown – to the point some fear a bubble about to burst. Deliveroo has its own problems. But its dreadful first day was a wake-up call for investors about the dangers of tech stocks.
It is possible Deliveroo will still come good. Ocado’s share float a decade ago was disappointing, but it went on to a stellar performance. But in the indiscriminate enthusiasm for tech it is often forgotten that, while a few companies will become titans, most won’t.
And, worryingly, many British savers are exposed to these volatile shares through their pensions and via popular technology investment trusts. Warning lights have been flashing for weeks about Deliveroo.
A list of the City’s top investors, including Aviva, Aberdeen Standard, Legal & General and M&G, gave the float the cold shoulder. So too did Britain’s most important technology backer, James Anderson, who runs the Scottish Mortgage investment fund.
One concern is workers’ rights. The fund managers who boycotted the float are worried the company might be vulnerable to lawsuits on behalf of gig-economy delivery riders. Eyebrows were also raised in the City about the enormous power Mr Shu exerts over the company, as he has a stranglehold on voting rights – which the Square Mile dislikes as it makes it difficult to oust the founder if he performs badly. The company is a loss-maker and there are worries that, once life returns to normal, people will lose the appetite for takeaway food.
BEYOnDthe cavils specific to Deliveroo, there is a wider malaise. The pandemic has changed our behaviour and prompted a craze for tech and media shares. The question is whether this is sustainable as life resumes.
Rock-bottom interest rates have also played a role in the tech mania. Confronted with pitiful sums on deposits, investors have been prepared to take on more and more risk in the hope of making a decent return.
Deliveroo is not the only episode to have jangled nerves in the City over tech and media shares this week. Worries about these stocks were also behind the spectacular blow-up of hedge fund Archegos on Wall Street. The Deliveroo debacle is a warning: Tech stocks look over-heated, and for share investors, there is rarely a free lunch.