So after 14 years and a lot of ups and downs, Ocado still hasn’t turned a profit. Even more disconcertingly, today’s pre-tax loss of £12.5m is significantly higher than the £0.6m loss a year ago.

And yet the company’s shares have ballooned more than 400% over the past year and it now commands a stock valuation of almost £3bn.

The disconnect between Ocado’s bottom line and its market value can only mean one thing. It’s a technology company.

The city made that call last year after the Morrisons deal. Rather than viewing Ocado as an online grocer fighting for share in a fiercely competitive market, investors woke up to the idea of Ocado the technology company that is poised to sign more lucrative deals at home and abroad.


Ocado is certainly looking more and more like a technology company. Its full-year statement dedicates more space to talking about its intellectual property and warehouses than groceries. Inside head office, there is also change afoot.

There are some 400 IT experts working for the company and Ocado revealed today it wanted to increase the size of the computing team 50% by the end of 2014 (it has also adopted occasional guerilla tactics to lure talent from other tech companies).

But technology companies are notorious for rising as fast as they fall. The question for Ocado is whether it can fulfil the promise that has transformed the share price.

Ocado CEO Tim Steiner certainly isn’t worried about the company’s continued failure to make a profit.

“Our stakeholders aren’t worried about that,” he told The Grocer today. “We are spending now in order to grow on multiple fronts.”

Dig beneath today’s reported loss and there is plenty of reason to be more enthusiastic than ever about Ocado’s future.

Profitability is not as bad as it looks. Pre-exceptional EBITDA rose by an impressive 32.8% to £45.8m – ahead of the analyst consensus estimate of £43m.

Analysts are also encouraged by its plan, revealed this morning, to “modularise future fulfilment capacity investments”. This means it will build future warehouses in stages and therefore avoid having to cough up large sums of money for new capacity that won’t be used straight away.

At the same time, it is delivering some impressive customer service metrics. The number of orders delivered on time rose to 95.5% this year from 92.7% the previous year and order accuracy also improved from 98% to 99%

Cantor analyst Mike Dennis thinks that Ocado isn’t far from building a model that could prove a serious threat to bricks and mortar retailers.

“The issue now lies with the impact on the store-based grocery industry, as Ocado could be close to creating a highly efficient, 99%-order accurate, low-priced grocery offer that would undercut all current global food retail offers,” he said.

It is not quite there yet, but few would doubt that the best is yet to come for Ocado – at least when it comes to profitability.