Ocado share price had another difficult performance this year as woes in its business escalated. OCDO was trading at 240p on Tuesday, down by 20% from where it started the year. It has dropped by 40% from the year-to-date high.
Ocado ends its exclusivity terms
The biggest Ocado news this year came from the United States, where Kroger, its biggest customer, announced that it would close some of its warehouses, an admission that its automated warehouses were not generating the desired return on investment.
Kroger, a major supermarket chain, has instead pivoted its business to using third-party companies like Instacart, DoorDash, and Uber Eats. By scaling down its partnership, the company announced that it would pay Ocado millions of dollars.
Ocado stock price retreated after the company announced that it ended its exclusivity arrangements to supply its automation solutions to clients. Ending this exclusivity means that the company will now be free to ink deals with other retailers globally.
The company hopes that ending the exclusivity will help it boost its business in the coming years. It even expects that its business will continue to attract more customers from the United States, where it still counts Kroger as its biggest client.
Ocado has had problems with other clients before. For example, Sobeys, its large partner in Canada, ended its planned warehouse launch in Vancouver, leading the two to end their exclusivity deals. However, Ocado is yet to ink more deals in Canada after the end of that exclusivity.
READ MORE: Ocado shares jump after Kroger agrees $350M payment for warehouse closures
Ocado’s main challenge is to convince retailers that its highly expensive technology is worth the investment, as cheaper alternatives have come up. Today, many retailers are opting to use third-party companies like Instacart and Uber Eats for their delivery services.
Additionally, many large retailers have already come up with their e-commerce strategies after the pandemic boom.
At the same time, the company continues to make substantial losses, with a path to profitability being blurry. The most recent results showed that the company’s revenue rose by 13% in the first half of the year to £674 million.
Its technology solutions revenue rose by 15%, while its logistics jumped by 12%, while the group adjusted EBITDA rose to over £92 million.
The company’s retail business did well, with the revenue rising by 16% to £1.52 billion, and its EBITDA improving to £33 million. The management expects that it will turn cash flow positive in the next financial year. It is unclear how the Kroger issue will impact its operations and profitability.
Ocado share price technical analysis
The daily timeframe chart shows that the OCDO stock price bottomed at 165.55p in November and then bounced back to a high of 252.8p.
On the positive side, it has formed an inverse head and shoulders pattern whose neckline is at 252.8p. An inverse H&S pattern is one of the most popular bullish reversal signs in technical analysis.
The stock has moved above the 50-day and 100-day Exponential Moving Averages (EMA)and is now at the 38.2% Fibonacci Retracement level.
Therefore, despite its challenges, the stock will likely continue rising in the coming weeks, potentially to the psychological level at 300p. A move above that level will point to more gains to the 61.8% retracement level at 308p.
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