Ocado’s latest financial update has sent shockwaves through the market, with its share price plummeting by as much as 18% on Thursday morning.
Despite showing some signs of improvement in its annual results, the company’s decision to cut research and development (R&D) spending and streamline operations has failed to reassure investors.
The online grocery and robotics firm is trimming its workforce to curb losses, but the market’s reaction suggests that patience with the company’s turnaround strategy is wearing thin.
The FTSE 250-listed firm, which has been unprofitable for years, reported narrower pre-tax losses of £374.5 million for the year ending December 1, 2024, compared to £393.6 million in the previous year.
Revenues climbed by 14.1% to £3.2 billion, but concerns over the long-term profitability of its technology solutions business overshadowed these gains.
Ocado’s outlook for 2025 has disappointed investors, leading to a steep decline in its market capitalisation, which dropped by approximately £600 million in early trading.
R&D spending cut after £800m investment
Ocado’s aggressive investment in R&D has been a defining feature of its strategy, with over £800 million spent on technological advancements over the past four years.
However, the company is now scaling back its innovation efforts in an attempt to rein in costs.
While Ocado has not disclosed the exact number of job losses, it confirmed that the reductions would be a “low single-digit percentage” of its global workforce, significantly less than the 1,000 redundancies announced in 2023–24.
The company, which operates robotic warehouse solutions for major retailers, currently has around eight R&D sites across different countries, with nearly half located in the UK.
The decision to reduce spending in this area raises questions about its ability to maintain a competitive edge in the highly automated grocery sector.
The strategic pivot is part of Ocado’s broader ambition to achieve cash flow positivity by 2026.
Investors remain unconvinced, particularly as growth in its technology solutions segment is expected to slow from 18.1% in 2024 to around 10% in 2025.
This decline has cast doubt on Ocado’s ability to scale its proprietary robotic warehouse technology at a pace that justifies its high R&D investments.
M&S payment dispute adds pressure
Adding to Ocado’s challenges is its ongoing financial dispute with Marks & Spencer (M&S), its partner in the Ocado Retail joint venture.
M&S is due to make a final payment of £190.7 million in April 2025 as part of the £750 million agreement signed when the partnership was formed in 2019.
Ocado has indicated that the final instalment is now under review, with the company writing down the value of the payment to zero in its full-year accounts.
Despite this accounting move, Ocado insists that it remains in “constructive discussions” with M&S and will use all legal and contractual options to maximise the amount recoverable.
The joint venture struggled to meet performance targets in 2023, leading to speculation that M&S may attempt to renegotiate or delay the payment.
While Ocado has ruled out selling its 50% stake in the venture, the uncertainty surrounding the deal has contributed to investor concerns.
The online grocery business did show signs of recovery, with underlying earnings surging from £10.4 million in 2023 to £44.6 million in 2024, and a 12.1% increase in customers to 1.1 million.
With the broader cost-cutting measures and legal uncertainty looming, investors are questioning whether Ocado Retail’s growth trajectory is enough to offset the risks elsewhere in the business.
Investor patience running out
Ocado’s share price reaction highlights the growing scepticism among investors about the company’s long-term prospects.
The London Stock Exchange-listed company had a market capitalisation of around £2.8 billion before the sharp drop in share value wiped off roughly £600 million.
This sharp decline made Ocado the biggest loser on the FTSE 250 for the day.
The company has long struggled to convince the market that its capital-intensive technology solutions will deliver sustainable profits.
While its robotic warehouse logistics division grew revenues by 7.6% to £718 million in 2024, its forecast for slower growth in 2025 has raised concerns about whether it can continue to expand its client base.
Ocado’s retail business with M&S saw a promising boost in sales, with revenues climbing 13.9% and weekly orders increasing by 12.5%.
This improvement is not enough to ease broader investor concerns over the company’s cash burn and uncertain technology business outlook.
With the market now looking for more drastic changes, speculation is mounting over whether Ocado will need to make a more fundamental shift in strategy—whether through leadership changes, a deeper restructuring, or reconsidering its retail joint venture.
As the company pushes ahead with cost-cutting measures, the pressure is on for Ocado to prove that its investments in automation and online grocery fulfilment can translate into sustainable profitability.
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