Most market commentators were wrong about Ocado

Most market commentators were wrong about Ocado. The UK online retailer was for years an irresistible target for negative commentary. It delivered posh food to picky suburbanites. It made losses. Its founders were former Goldman Sachs guys. The narrative encompassed by the jibe “starts with zero, ends with zero, will amount to zero” would have proved true, but for Amazon. The tech group’s growing ambitions in online groceries have scared the living daylights out of the world’s supermarket chains. This has allowed Ocado to change direction mid-flight. The automated warehouses it created to help it compete with incumbents could be sold to them instead. Ocado shares have tripled over two years… A month ago, a deal with Aeon gave Ocado a foothold in Japan. This left Ocado capitalised at £9.4 billion, a tidy sum for a UK-listed business… We are lukewarm bulls, however. Deals with partners are shrouded in commercial secrecy. Upfront investments from Ocado appear perplexingly high. Free cash flow remains resolutely negative, leaving the business to cover the shortfall with bond financing. Ocado delivers food a lot more promptly than cash returns.