Deliveroo shares slide as data offer scant evidence of short selling

New data have cast doubt on attempts to blame short-sellers for Deliveroo’s disastrous initial public offering last month, as the food delivery company’s stock fell another 10 per cent to new lows on Friday. 

Short-sellers — funds that try to profit from falling share prices — were accused by some Deliveroo advisers of contributing to the UK food delivery company’s more than 30 per cent drop on the morning of its initial public offering on March 31. Advisers working on the flotation said at least three hedge funds had taken an early short position straight after the listing, in what one banker badged “the worst IPO in London’s history”. 

However, data on Friday from IHS Markit showed just 4.65m Deliveroo shares were on loan based on Thursday night’s settlement, indicating very low levels of shorting. That equates to just 0.25 per cent of the company’s outstanding shares and 12 per cent of shares available to borrow, according to Markit. 

Stock lending data are a good indicator of short selling because hedge funds borrow shares to sell them in the market and bet on a lower price. But no significant shorts have yet been disclosed to the UK’s Financial Conduct Authority, which must be notified of new positions over 0.5 per cent of a stock. 

“This does suggest that short selling wasn’t a huge impact over the first two days of trading, when more than 100m shares traded,” said Sam Pierson, director of securities finance at IHS Markit.

While small, negative bets could have had an outsized effect, Deliveroo drew low trading volumes in its first hours as a public company, at around a third of levels anticipated by advisers. That could mean a relatively small short position could have knocked the share price early on, contributing to negative sentiment around the stock, according to a person who worked on the IPO. 

Hedge funds may have been put off by the relatively high cost of borrowing Deliveroo’s shares, while the unpredictability of betting against IPOs, where shares can easily soar in the first day or two of trading, would have made the trade more dangerous.

It is also possible that some hedge funds were still able to source shares to short-sell away from the securities lending market, for instance if a prime broker could find the shares themselves, which would not be captured in the data.

But most of the disclosed demand to borrow shares came on Tuesday this week, with negligible amounts of stock lending recorded last week, according to IHS Markit.

The disclosures came as Deliveroo hit a new low on Friday, with the shares closing 9.75 per cent lower at 254.5p, valuing the company at £4.4bn. Meanwhile its European rival Just Eat Takeaway.com was broadly flat for the day at 7,225p. 

Deliveroo’s IPO had been held up as a potential breakthrough for London’s plan to attract more tech listings. But many observers now believe the deal was either badly timed or mispriced by its joint global coordinators, Goldman Sachs and JPMorgan, missing last year’s tech stock growth spurt and overestimating London investors’ appetite for a lossmaking business with growing regulatory challenges. 

After floating in a week notable for choppy markets and rising bond yields, Deliveroo was overlooked by traders during this week’s rally, which sent US and European equities to new record highs, thanks in part to rebounding tech stocks. 

Deliveroo and Just Eat Takeaway are both expected to report first-quarter trading updates next week.