Tech

Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

Tech stocks whipsaw and yet a large, loss-making dotcom gets huge demand for its first public share sale and a favorable reception on its debut. The 4.4 billion euro ($5 billion) listing of Delivery Hero says a lot about modern money trends.

Delivery Hero AG connects restaurants with customers via the internet. Its initial public offering priced at 25.50 euros per share on Wednesday, the top of the marketing range. Then global stocks dived. Even so, Delivery Hero was hovering up about 7 percent in its first hours of trading on Friday.

It's tempting to view this as validation for Europe's tech sector: here is Frankfurt attracting international investors for a company that might plausibly have targeted Nasdaq. Rocket Internet SE, the internet incubator and main shareholder, will also see this as vindicating its own business model even though it was a relatively late investor in Delivery Hero and had no board seat.

Booster Button
Delivery Hero's main shareholder, Rocket, needs some good news to catch up with the market
Source: Bloomberg

But the food takeout specialist also happens to be in an equity market sweet spot -- a sought-after growth stock at a time when European shares are trading at a 13 percent discount to the U.S. market, and when Mario Draghi is making investors question their assumption about the euro only ever weakening versus the dollar. IPO activity in Europe, while up 54 percent at $27 billion so far this year, still lags a global IPO surge which has seen volumes more than double to about $100 billion.

Playing Catch-up
The rise in European IPO volumes lags a global surge this year
Source: Bloomberg

On top, the Delivery Hero offering was for almost $1 billion of stock, ensuring reasonably fluid trading. Contrast that with tiny pizza and chicken restaurateur DP Eurasia NV, still below its issue price from this week's IPO. Only three European IPOs, including Allied Irish Banks Plc, have exceeded Delivery Hero's size this year. The deal accounts for most of Germany's $1.5 billion of IPO stock in the first half.

So is it any wonder that investment funds, flush with clients' cash, would want to buy in? Those happy to ignore profit-based valuation metrics could still comfort themselves that Delivery Hero came at discount to rivals Just Eat Plc and Takeaway.Com Holding NV, cheaper by 10 to 15 percent on trailing revenue multiples and even wider if you use punchy 2018 estimates. 

Investors clearly have a taste for home-delivered cooked food, much more than meal-kit outfits like Blue Apron Holdings Inc, which had to cut its IPO price range this week and looks somewhat more vulnerable to challenge by a combined Amazon.com Inc./Whole Foods Market Inc.

If conditions hold, the rest of the year could be good for European issuers with big deals on their hands. The likes of Telefonica SA, preparing a float of its British cellphone unit O2, will be crossing their fingers. The only snag with O2 is that it already makes money.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Hughes in London at chughes89@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net