Deliveroo IPO disaster - A question of ethics

[Pale Rider]

The offer has been widely described as a 'disaster', but I wonder if it's so bad.

As I understand it, £1,000 invested is now notionally £666, although public trading has yet to start.

Seems to me there is an expectation a share offer will automatically return instant profits, but why should it?

The price could easily recover over time, enabling those early investors to get most of their money back.

And it could be worse, one of my very few small investments went into pre-pack administration.

The value of my shares was wiped out overnight, and since they no longer exist, the 100% loss is permanent.

 

[Eric Olthwaite]

it would be interesting to see some proper analysis of what would happen to worker hours and earnings if Deliveroo were to move away from the "gig economy" model.

Clearly, it is nonsense for Deliveroo to pretend that a 15 minute gap between deliveries during a busy evening period doesn't count as time spent working.

On the other hand, it is unrealistic to pretend, as some of Deliveroo's critics do, that any employer is ever going to pay workers a wage for all the hours they choose to be logged in as "available to work", regardless of the level of demand for deliveries. It is inevitable that any right to be paid for all hours logged in will be accompanied by the employer restricting the number of logged in slots available at different times, according to the pattern of demand. It's not obvious what this would end up looking like. It might suit some of Deliveroo's workers very well; but others might prefer the existing system.

 

[Adam4868]

it would be interesting to see some proper analysis of what would happen to worker hours and earnings if Deliveroo were to move away from the "gig economy" model.

Clearly, it is nonsense for Deliveroo to pretend that a 15 minute gap between deliveries during a busy evening period doesn't count as time spent working.

On the other hand, it is unrealistic to pretend, as some of Deliveroo's critics do, that any employer is ever going to pay workers a wage for all the hours they choose to be logged in as "available to work", regardless of the level of demand for deliveries. It is inevitable that any right to be paid for all hours logged in will be accompanied by the employer restricting the number of logged in slots available at different times, according to the pattern of demand. It's not obvious what this would end up looking like. It might suit some of Deliveroo's workers very well; but others might prefer the existing system.

Imagine that...getting paid for the hours you work

 

[lane]

Not worst for the company. Perhaps for the people who bought the shares immediatey and lost upto 30%

Not sure asset managers really care about 'ethics' since they all run, for example, China Funds, and don't seem overly worried about that. More likely they saw that Deliveroo was unable to turn a profit even during lockdown, and have competition from Uber Eats and JustEat amongst others.

Yes there are a number of reasons that it was unsuccessful - issues around employment laws being one - but that has a lot to do with potential impact on future profitability as much as - or more than - ethics. The share structure was unusual in a number of ways which made the offer unattractive to institutional investors, it was also made available to the public as rather than just investment banks which not all financial institutions welcomed and it was probably also over priced.

In terms of ethics, lets face it most things we purchase are produced by people suffering much worse conditions than the Deliveroo staff, but that doesn't stop us buying them or companies investing in them - or actively outsourcing work to take advantage of low pay and poor conditions. I don't think ethics was a big issue here.

 

[nickyboy]

Deliveroo workers are presently deemed to be self employed
Kerman & Co. | Deliveroo Riders Are Self-Employed, High Court Rules

However, the sands are moving under their feet and the consensus view seems to be that employment law is moving towards people who work for Deliveroo (and Uber is the case in point here) being classified as employees rather than self employed. Should they be classified as employees then Deliveroo will have to provide sick pay, maternity pay, paternity leave, pension contributions, employee liability insurance, company NI contributions etc

Those that chose not to participate in the IPO may say it was on ethical grounds. However, the reality is that Deliveroo is heavily loss making, has a bunch of competitors and may, in the future, face a load of costs they currently don't have

Of course this will ultimately knock on to the prices charged to customers. Our Deliveroo charges, our Uber charges etc etc will all have to increase to pay for the employee benefits. Some will be happy to pay more, some not.

 

[Arrowfoot]

Here are some further details.

1. Deliveroo offered its 6M Uk Deliveroo customer with their app and one order an opportunity to invest via their IPO. 70,000 Deliveroo customers took up the offer with share allocation from £250 to £1000. Within minutes of opening they lost 30% of their investment.
2. Due to conditional trading limit, open trading will only commence on Wed, 7th April. Will they hold or will they dump?
3. Goldman Sachs and JP Morgan which advised the IPO took away £49M in fees.
4. All the founders and initial investor will walk away with millions but the value of the remaining stock that they hold will be much lower reflective of the current price which stand at 280p vs 390p. CEO will take home approximately £25M from the IPO.

 

[Arrowfoot]

Seems to me there is an expectation a share offer will automatically return instant profits, but why should it?

That applies when you invest or buy shares in existing public listed companies. It can go either way due to so many variables.

For IPO it is different. It takes from 12 to 18 months for an IPO to be launched. It involves heavy scrutiny of the past financials by the IPO advisors, underwriters and syndication leaders. Probably the best minds when it comes to number crunching. And the best paid in Finance. The IPO listing is considered the value of the company at that point in time. When the price plunges at the opening day, it is considered a failure. Heads will roll, recrimination will occur in view of the fees involved.

Number of reasons an IPO fails
1. The advisors were greedy and overvalued it
2. The company investors and owners had an undue influence over the advisors
3. The regulators and authorities were too enthusiastic in promoting the IPO (normally they are quiet)
4. There is an element of fraud that was not uncovered.
5. Poor timing - market appetite is not there. Good advisors will withdraw just as Wework did within weeks.

I think it is a combination of the first 3. For 3, Rishi came out in support of Deliveroo by name and even moved changes on rule listing coincidently on the day of the IPO using Deliveroo as the poster child. This is in order to attract more tech companies to London for listing. The pressure is on after London lost its crown to Amsterdam this year on listings.

With this disaster, London is lost for a long while. No tech company is coming this way. Do note that 86% of tech companies that were listed in the US did not show a single year of profit at the point of listing. And most have gone on to become first class investment.

In essence, this failure has far reaching consequences that go beyond Deliveroo.

 

[stowie]

However, the sands are moving under their feet and the consensus view seems to be that employment law is moving towards people who work for Deliveroo (and Uber is the case in point here) being classified as employees rather than self employed. Should they be classified as employees then Deliveroo will have to provide sick pay, maternity pay, paternity leave, pension contributions, employee liability insurance, company NI contributions etc

Not directly about Deliveroo, but similar employee business model. I watched a detailed breakdown of the pay and costs driving for Uber. This was US based, so may be different in other countries. Essentially the drivers were often driving for no money once the costs had been factored in. Why would anyone do that? Because doing the work gave cash now - a sort of emergency loan for people who had to cover immediate bills. Some of the costs are deferred such as tax and maintenance. Uber was effectively being used as a pay-day loan where the interest was time spent working rather than an actual interest rate. Sounded to me like the restaurant industry where employees live on tips.

 

[Arrowfoot]

Latest read on the question of wages.

https://www.thebureauinvestigates.c...eliveroo-riders-earning-as-little-as-2-pounds

 

[PK99]

Im not so sure ?
https://www.theguardian.com/busines...oo-riders-earning-just-2-an-hour-survey-finds

IIRC, Deliveroo and Uber both play the sleight of hand trick of paying above minimum wage for active time but nothing for waiting time yet their very business model relies on riders/drivers being idle waiting for orders.

I don't use uber, we use a local taxi service or black cabs, or Deliveroo etc, we collect or use own-delivery restaurants.

I don't want my convenience or lower price to come at the expense of the guys doing the work while enriching the App owner. On the few occasions I did use Deliveroo, I gave a generous cash tip to the driver - just as I do in a restaurant - from their wide eyed surprise I took it that I was unusual in doing that.

 

[PK99]

it would be interesting to see some proper analysis of what would happen to worker hours and earnings if Deliveroo were to move away from the "gig economy" model.

Clearly, it is nonsense for Deliveroo to pretend that a 15 minute gap between deliveries during a busy evening period doesn't count as time spent working.

On the other hand, it is unrealistic to pretend, as some of Deliveroo's critics do, that any employer is ever going to pay workers a wage for all the hours they choose to be logged in as "available to work", regardless of the level of demand for deliveries. It is inevitable that any right to be paid for all hours logged in will be accompanied by the employer restricting the number of logged in slots available at different times, according to the pattern of demand. It's not obvious what this would end up looking like. It might suit some of Deliveroo's workers very well; but others might prefer the existing system.

My uncle was a docker in Liverpool in the 1930's. No regular job. Just queuing each day for any few hours work that might be available, and rates bidded down by desperate men with families to feed.

One might have hoped that such practices were gone forever, but the gig economy of Uber and Deliveroo suggests otherwise.

I am also continuously surprised to see proud leftie friends happy to use Uber etc and happy to laugh off any criticisms of the business model.

 

[Pale Rider]

I am also continuously surprised to see proud leftie friends happy to use Uber etc and happy to laugh off any criticisms of the business model.

The Islington attitude was never restricted to residents of the borough.

 

[Adam4868]

IIRC, Deliveroo and Uber both play the sleight of hand trick of paying above minimum wage for active time but nothing for waiting time yet their very business model relies on riders/drivers being idle waiting for orders.

I don't use uber, we use a local taxi service or black cabs, or Deliveroo etc, we collect or use own-delivery restaurants.

I don't want my convenience or lower price to come at the expense of the guys doing the work while enriching the App owner. On the few occasions I did use Deliveroo, I gave a generous cash tip to the driver - just as I do in a restaurant - from their wide eyed surprise I took it that I was unusual in doing that.

Same I wouldn't touch any of them.Sad that more people don't see these company's for what they are.

 

[Arrowfoot]

My uncle was a docker in Liverpool in the 1930's. No regular job. Just queuing each day for any few hours work that might be available, and rates bidded down by desperate men with families to feed.

You see the same with deliveroo and others on the same model. Riders gather at town centre and sometimes wait for a few hours for order to come thru. The common belief is that the riders wait in the comfort of their home. Those who are close to the food outlets get tagged first. To avoid disappointment and cancelled orders due to long delays, these companies have signed more riders than they need and so over time, order per rider drops and so do their income.

This is where authorities should step in make these companies publish fees and be transparent. Its is pointless talking about fee per delivery if the overall income drops.

 

[PK99]

You see the same with deliveroo and others on the same model. Riders gather at town centre and sometimes wait for a few hours for order to come thru. The common belief is that the riders wait in the comfort of their home. Those who are close to the food outlets get tagged first. To avoid disappointment and cancelled orders due to long delays, these companies have signed more riders than they need and so over time, order per rider drops and so do their income.

This is where authorities should step in make these companies publish fees and be transparent. Its is pointless talking about fee per delivery if the overall income drops.

Centre of Wimbledon all day every day: