Ocado Revenue Rises But Analyst Says Company Needs to ‘Seriously Consider Its Options’

Ocado Group (LON: OCDO) reported “strong financial progress,” with revenue increasing 12.6% to £1.5 billion in the first half of the year (for the 26 weeks ended 2 June 2024).

The company revealed that its Technology Solutions segment was a key driver of growth, delivering a 21.8% revenue increase and an EBITDA margin of 15%.

Ocado Retail also contributed to the positive results, with revenue growing 11.3% and an adjusted EBITDA margin of 1.6%.

The company's underlying cash outflow improved significantly, decreasing by £101 million to £(197) million. As a result, Ocado raised its FY24 guidance for underlying cash flow and Technology Solutions EBITDA, demonstrating its confidence in the business's performance.

Technology Solutions continued to deliver strong results, with the average number of live modules increasing 11% to 112. The segment is expected to see further growth, with a minimum of 120 modules expected to be live by the end of FY24. Ocado has raised its FY24 revenue growth guidance for Technology Solutions to 15-20% and its EBITDA margin guidance to a mid-teens percentage.

Ocado Logistics maintained its position as a “highly efficient” distribution model, said the company, noting its improved CFC productivity and stable adjusted EBITDA.

Ocado Retail achieved revenue growth of 11.3% and is on track to deliver its FY24 adjusted EBITDA margin guidance of 2.5%. The company increased its share of the UK online grocery market to 12.3% and said it continues to invest in price and customer experience.

Looking ahead, Ocado expects to improve its underlying cash flow by £150 million in FY24 and has revised its capital expenditure guidance to around £425 million.

The company believes it remains on track to achieve positive cash flow by FY26.

Despite the positives, on Monday, ahead of today's release, analysts at Bernstein downgraded Ocado to Underperform from Outperform, sending its shares more than 10% lower. The firm also slashed its target for the stock to 260p from 1,000p.

Bernstein told investors in a research note that it feels the company “needs to seriously consider its options” as online has not bounced back following the pandemic, and partnerships have been paused.

“‘We wonder if the cultural fit of a high-performing tech business like Ocado works well with slow-moving, traditional grocers,” said Bernstein. They also questioned whether the public market is the “‘right place for Ocado.”