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Highlights
- With the EU cracking down on the gig economy, the share prices of the UK-based leading online food delivery company, Deliveroo, have been sliding down.
- As per the new rule, gig economy companies would have to reclassify some of their workers as employees.
After a recent EU ruling, gig economy companies, like Deliveroo and Uber, would have to reclassify some of their workers as employees. On 9 December, the draft legislation was published, shifting the burden of proof regarding the status of employment on the companies rather than the workers. The move was proposed by the European Commission to protect the social rights of the gig economy workers and differentiate when they should be treated as independent contractors and when as regular employees.
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Impact on Deliveroo
A set of five criteria have been established under the new rules to ascertain if the platforms would be considered as employers. If the working hours, appearance, and remuneration of the workers are decided by the company and they are restricted to work for any third parties while their daily performance is monitored via electronic means, the company would essentially be considered as an employer, if any two of these conditions are met. These new rules would potentially have an impact on approximately 1.7 million to 4.1 million workers across around 15 companies.
With the EU cracking down on the gig economy, the share prices of the UK-based leading online food delivery company, Deliveroo, have been sliding down. When the new rules were first proposed by the European Commission on 6 December, Deliveroo’s shares plunged by 9.6%. This came amid Deliveroo’s stock value already going down due to the company’s founder Will Shu selling his shares worth £47 million to pay off a tax bill. Deliveroo’s chief financial officer, Adam Miller, also recently sold off £2 million Class A stock to get rid of some tax liabilities.
Even though the business of the company flourished due to high demand for online food delivery during the lockdown, it has faced a lot of turbulence this year, along with a disastrous London IPO in March 2021, with its value plunging by 25% in just one day.
RELATED READ: How EU rules for gig workers can impact Deliveroo (LON:ROO)
Should you buy Deliveroo shares?
After recovering a little in the past few months, the shares of Deliveroo are going down again. Investors are wary about Deliveroo shares due to a potential impact on the company’s profitability as it would have to provide minimum wage, paid holidays, and pension to its reclassified workers under the new EU rules. Due to rising inflation and an anticipated interest rate hike, the already unprofitable company doesn’t seem like an attractive investment for investors. Deliveroo shares are very volatile as the number of its shares available on the market, or its free float, stands at just 70%, which is quite low considering its size.
However, moving into 2022 its shares could perform better with the Omicron curbs forcing people to stay inside their houses, increasing the online food deliveries yet again. The company benefited because of the earlier lockdowns as well. Also, it takes a lot of time for implementation of new rules and the delay due to legal obstacles could prove to be profitable for the traders investing in the short term.
The market cap of Deliveroo plc (LON: ROO) stood at £3,864.40 million and its shares closed at GBX 224.40 as of 13 December 2021.
RELATED READ: Deliveroo (LON:ROO) & Kanabo (LON:KNB): Should you buy these 2 stocks?
Bottomline
In the current economic climate, it is hard to exactly predict where the shares of Deliveroo are heading. Short-term traders may benefit from the increased demand for online food deliveries due to Omicron curbs, while the long-term investors may need to recalibrate their investment decision.
