Up 50% in June, where will the Ocado share price go next?3 Jul 2023 09:36
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"Bean counting
In its latest trading update, Ocado said it would have “marginally positive” EBITDA (earnings before interest, tax, depreciation, and amortisation) for its 2023 financial year, skewed towards the second half.
This would be an improvement on 2022 when EBITDA was in fact a loss of £74m.
But this measure of profitability ignores depreciation, amortisation, and interest, which are important.
Ocado considers itself to be a technology company rather than a retailer. That’s why it has a lot of tangible and intangible (non-physical) assets on its balance sheet. These are written off over their useful lives by including a charge in its accounts.
Although this hit to profitability is a non-cash item, it reflects the fact that many of the assets will need to be replaced or refurbished at some point.
And because it’s loss-making, it’s only been able to buy these assets by borrowing. At 27 November 2022, it had £1.37bn of debt, giving rise to an interest charge of £90m for the year.
That’s why there’s such a disparity between last year’s EBITDA and its loss before tax. And this is likely to continue for the foreseeable future.
To illustrate this, for the company to have recorded a break-even result (before tax) last year, it would have needed revenue to be 52% higher.
For Q1 2023, revenue was up ‘only’ 3.4%, compared to the same period in 2022. The company clearly has a long way to go before it’s profitable on all measures.
However, I acknowledge that the number of orders, active customers, and average selling price increased during the first quarter."
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