The Ocado [OCDO.L] share price is trending lower ahead of the company’s critical Christmas trading update, weighed down by the broad tech selloff and a fall in e-commerce demand as pandemic restrictions begin to ease.
On 14 December, the online grocer provided a promising trading update for the 13 weeks to 28 November 2021, reporting a 31.6% year-on-year increase in revenue to £547.8m. The results were driven by an 8.5% year-on-year rise in average orders per week, putting it on track to reach the 1 million customer milestone.
At the same time, the average basket value fell 12% from the previous quarter to £118 as shoppers returned to physical stores amid easing restrictions. As a result, sales were down 4% from the year-ago quarter.
As the company prepares to report its full-year results on 8 February, a post-earnings recovery could be on the cards for the Ocado share price. In its full-year numbers, our chief market analyst Michael Hewson expects the retailer to outline sales growth at the upper end of its 10-15% guidance range. However, earnings may be impacted by supply chain squeezes, which Ocado said earlier this year could add £5m to its cost base.
Ocado share price halves amid robot war
Concerns that e-commerce demand is slowing amid the easing of restrictions have contributed to the Ocado share price falling 15.9% since the start of 2022 to 1,410p, as of the close on 4 February. That marks a 50% decrease in the past 12 months. Shares in Ocado had hit a 52-week low of 1,354.50p during intraday trading on 24 January in reaction to the market selloff in high-growth tech stocks.
The Ocado share price has also been dragged down by a series of intellectual property legal battles from the so-called ‘robot war’ with Norwegian warehouse robot maker AutoStore. The Ocado stock price dropped 7.2% on 28 January after a court in Munich halted proceedings brought by Ocado to block the sales of AutoStore robots in Germany.
However, there was a slight uptick in the Ocado share price after a product launch event last month entitled ‘Ocado Re: Imagined’ showcased a new lighter, faster and quieter grid robot. Ocado chief executive Tim Steiner suggested that its customer fulfilment centres could be retrofitted with grid robots in existing buildings and sites. “We can deploy it faster in more locations,” Steiner said.
The company’s upcoming earnings call could give Steiner and his team another opportunity to share insights into the potential of the technology and what it means in terms of securing new partnerships.
Analysts see Ocado stock price halving as opportunity
With the Ocado share price having halved in the past year, analysts led by Victoria Petrova at Credit Suisse believe it presents a buying opportunity, according to Bloomberg. The firm upgraded the Ocado stock price to ‘outperform’ and gave it an average share price target of 1,750p which would represent a 24.1% jump from its 4 February close.
Credit Suisse expects the development of new low-cost technology to speed up online grocery deliveries, which will allow for deeper ties with existing partners and increase the probability of new deals in 2022.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, also believes that Ocado’s performance depends on its ability to sign up more retail partners with its tech. “Retail chains pay for Ocado’s cutting-edge warehouse and picking technology to boost their own online offerings. The pandemic has turbocharged the shift to online shopping, increasing demand for the kind of technology Ocado specialises in. But we’d argue the number of new deals being struck is still modest, given the helpful market conditions,” Lund-Yates said.
According to Lund-Yates, Ocado’s solutions business saw half-year losses widen to £56.6m as higher investment costs offset the revenue benefit of two customer fulfilment centres coming online for US grocery retailer Kroger. “We would like to see that losses have narrowed or are at least holding steady,” she said.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.