One of 2021’s biggest London IPOs (initial public offerings) turned out to be a washout. The flotation of Deliveroo (LSE: ROO) on 31 March left investors shell-shocked as the Deliveroo share price plunged on opening. The offer price of 390p a share valued the food-delivery group at £7.6bn. Alas, instead of the usual first-day uplift, ROO shares plunged to 271p before closing at 287.45p on day one. Even worse, the Deliveroo share price kept on falling for weeks. The shares dipped to an intra-day low of 224.44p on 23 April, before hitting a closing low of 228p on 26 April.
The Deliveroo share price rebounds
Having hit rock-bottom in April, the share price rebounded. As I write on Thursday, ROO shares hover around 257.3p. This values the group at £4.4bn — £3.2bn less than its IPO valuation. Today, ROO shares are up almost 33p — more than a seventh (14.7%) — from their all-time low.
After this recent rebound, the share price is at a discount of more than a third (34%) to the IPO price. Does this mean that ROO shares are in bargain-bin territory? I’m not sure, especially after reading a damning consumer report into food-delivery apps.
Deliveroo gets the thumbs-down from Which?
This morning, the Deliveroo share price dropped to nearly 250p, down 2.4%. This might have been in response to a damaging report released by consumer watchdog Which?. In its review of food-delivery apps from Deliveroo, UberEats and Just Eat, Which? compared the cost of meals from five food outlets. It found that ordering through one of the delivery apps, rather than buying direct, was as much as four-ninths (44%) more expensive. Of course, consumers know that Deliveroo, Uber Eats and Just Eat are not the cheapest option, but this price differential is very striking.
Furthermore, this survey revealed Deliveroo to be the most expensive of these three food apps. On average, buying a takeaway via these apps costs almost a quarter (23%) more than ordering direct. But the average additional cost for ordering via Deliveroo was almost a third (31%) more expensive than ordering direct. These costs were 25% at Uber Eats and a mere 7% at Just Eat. Also, Deliveroo fared badly when it came to customer service. More than half (53%) of Deliveroo customers who complained about deliveries found the process difficult, versus 46% at Just Eat and 42% at UberEats. Could these poor survey results have any effect on the Deliveroo share price?
Deliveroo is growing fast
Personally, I’m not convinced that this news will have any real impact on the share price. After all, Deliveroo has proved hugely popular during Covid-19 lockdowns, with its sales soaring. First-quarter orders more than doubled (+114%) in 2021 versus Q1/20 — and exceeded 71m. Likewise, gross transaction value in Q1/21 was up a whopping 130% year-on-year to £1.65bn (versus £715m in Q1/20). Such strong numbers might make ROO shares appealing to growth investors.
Then again, it’s possible that Deliveroo’s reputation might suffer if it fails to improve its customer service and expensive pricing. Also, what happens when Covid-19 restrictions finally end and we all return to dining out at our favourite eateries? Will Deliveroo’s sales growth slow, potentially hitting its share price? It remains to be seen. I don’t own ROO shares today. Also, as a value investor, ROO won’t be on my buy list until the stock is considerably cheaper!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.