As of 3.00pm Friday 23rd July shares in Ocado, the online grocery delivery company, were trading at £1.55p. Well down on Wednesday's opening price of £1.80p and a country mile from the £2.72 - £2.00p that its ex Goldman Sachs owners touted as the company's value on Tuesday evening.
£1.55p still values Ocado at around £500 million, and the mystery is why anyone should think that a business which has never made a profit in its 8 years of trading, has an unproven business model, is competing with grocery giants like Tesco, and is fighting head to head with Waitrose who supply Ocado's products but who are also seeking to build an online offering, can be worth even that.
The optimists would point to Ocado's massive top line growth. They would cite projections that online grocery shopping will double in size to £7.2bn or about 5% of total grocery sales by 2014 (IGD research). And they would say that online retailers such as Amazon struggled to make a profit when they started out.
The Goldman Sachs founders would also add that they own world beating sophisticated technology, and that American investors who account for nearly 60% of shareholdings "get" this, whereas the Brits do not.
It should also be noted that, despite adverse comments in the press, Ocado's own customers were confident enough to invest between £5 and £10m of their own money in the company, and whilst customer investment was expected to be much higher (up to about £60million), this could say something about the quality of the Ocado offer versus competition. These customers have the chance to offload their shares at the original price of £1.80p and it will be interesting to see how many do so.
This blog was very sceptical about Ocado way back in March, and remains sceptical. It would be great to be proved wrong and find that a British business could succeed due to a genuinely different consumer offer backed by technological innovation.
We shall watch with interest.
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