Ocado’s Path to Profit: Clear Roadmap Announced

Ocado, an online grocery company, was riding high—but lost its cool as share prices crashed. Yet, they reported a pre-tax loss of £153.9 million but showed a 12.6% increase in revenue. Their shares jumped by 18% when they moved out of their numbers. The reason is also that it is primarily a technology and automation company, having a clear plan towards profits by 2026.

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There has been a difficult time lately for the favourite online grocery firm Ocado. Earlier this week, its shares lost a high percentage after a highly regarded broker downgraded its stock. Despite all these, Ocado has posted a pre-tax loss amounting to £153.9 million for the first half of the year. There is but a glimmer of hope—revenues soared 12.6% on last year, to £1.5 billion.

Ocado shares surged by 18% after the results were communicated. That demonstrates investors still believe in the future of the company. While not expected to make a profit until 2026, the Ocado chief outlined a “clear road map” toward profitability.

The Ocado business is founded on three main divisions: retail, technology, and logistics. The retail arm is the largest and delivered £1.3 billion, up 11%. The tech division did far better with its revenue, increasing by 22%. Indeed, the logistics arm also grew, though it was the slowest, posting 6%.

Ocado is a business which has been very rapidly transformed in recent years into one which supplies robotics and automation to other businesses. Indeed, some analysts believe it will eventually become a pure play on technology, and that it’s the retail business that will be spun off.

EBITDA for the first half, as we’ve discussed, was £71.2 million. That’s way up on last year’s £16.6 million.

“We have got through a quite anomalous period for online grocery shopping,” said Tim Steiner, Ocado’s chief executive. “Having seen such an uplift in demand during the pandemic and several years of rising food prices, the move to shop online globally is starting to pick up. Ocado is ideally placed to benefit from this acceleration.”

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Ocado is very positive about how its future is looking. The company raised its guidance on full year EBITDA as the technology sector of the group showed betterment. Steiner also commented, “the more our technology advances it makes us more productive and keeps our customers happy.”.

Steiner said: “In the UK, Ocado Retail continues to lead in online grocery shopping. Internationally we have orders for more capacity and many of our partners are seeing strong growth in digital sales year on year. We look forward to making more progress throughout the rest of the financial year and beyond as we build a profitable, cash-generating technology business.”

Orwa Mohamad, an analyst at Third Bridge, added: “Online grocery shopping penetration is forecast to rise from 12% to 15% by 2028. The drive will come from improved competitiveness, higher automation in grocery stores, and cheaper home deliveries. The marketplace is getting more competitive, and Amazon is looking to significantly increase its share of the e-grocery market.”

One of the main challenges for this company is the perception society has, that Ocado is an expensive online retailer. Therefore, it should look into its value it offers the customer, make delivery cheaper and more flexible, and better multi-buy deals.

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Mohamad also included the joint venture between M&S and Ocado. M&S seeks to move its stock online while the goal of Ocado is to create a platform for all retailers around the world. Experts from Third Bridge say that this is due to complete spin-off or the purchase of the whole business by M&S.

Ocado also recently announced that one of the City’s most bullish brokers had cut its rating on the stock, meaning they published their result one day after a dive in the share price. Bernstein, the broker, had moved from ‘outperform’ to ‘underperform’ and reduced its price target from 1,000p to 250p.

In spite of these challenges, Ocado remains at the top of the online grocery market, and the map to profit looks clear enough to bounce back stronger.

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