Breakingviews - Deliveroo’s IPO is a dish best served soon

A cyclist rides a bicycle as he delivers a food order for Deliveroo, an example of the emergence of what is known as the 'gig economy', in Paris, France, April 7, 2017.

LONDON (Reuters Breakingviews) - Hot meals aid digestion. Will Shu should take note. The Deliveroo boss is looking to list the UK-based food delivery company in the public market next year, and can credibly expect to hike the $2 billion valuation attained in 2017 to more like $5 billion. He can’t afford to dawdle, though.

Given that the pandemic has left so many workers and families stuck at home, it’s a good time to be in food delivery. Shares of listed Deliveroo rivals Just Eat and Delivery Hero are up 16% and 42% so far this year, and together they have raised over 2 billion euros through their fundraisings. During the pandemic, Deliveroo has started delivering essentials from toilet rolls to flour from outlets like Marks and Spencer. Online food delivery’s share has jumped from 9% of restaurants offering takeaways to 13% this year, Morgan Stanley says, and last week Deliveroo pledged to double its riders by New Year – an extra 15,000.

Deliveroo’s valuation should reflect the good cheer. Revenue in 2020 is likely to be between 800 million pounds and 1 billion pounds, according to a person familiar with the situation. Assume the actual figure is 900 million pounds. If the group’s enterprise value traded at the 7.3 times 2020 sales average of Just Eat and Delivery Hero, using Refinitiv data, Deliveroo would be worth over 6.5 billion pounds.

Shu, a former Morgan Stanley banker, may not want to set his sights that high. While Deliveroo recorded a 72% annual revenue growth rate to leave 2018 revenue at 476 million pounds and swung to profit this summer, it has been a bumpy ride. Shu has yet to confirm 2019 numbers but given 2020 projections the breakneck expansion may have slowed. In April the UK competition authority warned that Deliveroo could go bankrupt without an investment by, which subsequently became a 16% shareholder.

Deliveroo has other unappetising issues. Rivals like Uber Technologies, backed by deep-pocketed SoftBank Group, are muscling in. Fights over its delivery drivers’ rights won’t go away. Most of all, demand for food delivery orders will come down eventually when vaccines arrive. Hence the need to aim for more like $5 billion – and move quickly.


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