Ocado's share price drops even though it's on track to make its first annual profit

The online retailer may be about to finally swing into the black, but investors were expecting better.

by Rachel Savage
Last Updated: 14 Jan 2015

- Read MT’s interview with Ocado founders Jason Gissing and Tim Steiner

The day has arrived: Ocado is finally turning a profit. It only took it 14 years. It’s no good doing well, though, if investors were expecting even more and, lo, shares were down almost 5% in mid-morning trading.

The online grocery retailer made a profit of £7.5m in the 24 week to 18th May, compared to a £1m loss in the same period in 2013, and is on track to chalk up its first annual profit since it was founded in 2000.

Meanwhile, revenue rose 20.7% to £429.7m. Darn good growth one might think, except analysts surveyed by Bloomberg had forecasted sales of £440.8m. The company also said ‘the grocery market remained subdued’ and growth in online sales would be ‘slower’ than in recent years, although still ahead of the overall market.

While Ocado’s lucrative tie-up with Morrisons launched in January, there are clearly doubts that it can sustain its own sales growth in an arena increasingly bloodied by supermarket price wars. Moreover, Morrisons has been doing none so well of late. Given Waitrose has now launched its own online offering, Ocado’s fate is now inextricably tied to a struggling supermarket.

As Shore Capital analyst Mike Stewart put it, ‘The business provides a good service but is not a proprietary retailer of any substance to our minds as it depends upon Waitrose and Morrison's.’ Oof.

After being the best-performing stock in Europe in 2013, Ocado’s shares are down more than 21% so far this year (see below). Its future lies in tie-ups like those with Waitrose and Morrisons, but those partnerships aren’t looking so steady any more. Ocado needs to go on the hunt for a new partner in crime –Aldi or Lidl, perhaps?

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