Stocks of the UK tech company Ocado are down over 40% year-to-date (YTD). This figure follows the downwards trend of US technology stocks and is representative of the repercussions being suffered by the tech sector after having to face the latest challenges to the industry.
Despite the majority of global technology companies being based in the US, the UK continues to house a thriving tech sector. During the coronavirus pandemic, the technology sector boomed as people adapted to a more hybrid way of working from home.
But as an increasing number of people return to the office, and the population reverts to pre-pandemic habits, the UK tech sector has, in places, seen a notable reversal in its uphill progress.
Ocado in Decline
The British online supermarket Ocado is a business which licenses grocery technology. The company is based in Hertfordshire and describes itself as “the world’s largest dedicated online grocery retailer”.
The company, a joint venture with Marks & Spencer (which owns 50% of the shares), has seen its sales drop in the first quarter as shoppers have returned to pre-Covid buying habits. Additionally, Ocado has warned of the difficulties in predicting the impacts that rising food prices, as well as the cost of living crisis, would have on the business.
According to the Wall Street Journal, the online supermarket is implementing cost cuts to protect profits, but has admitted to revenues falling by 5.7% to £564.7 million year-on-year in the 13 weeks leading up to February 27th.
Piero Cingari – an analyst at Capital.com – said, “Ocado is down 49% over the past year, and nearly 70% since the all-time highs hit in October 2020. From a fundamental standpoint, Ocado is unprofitable”.
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Ocado stated that, like the rest of the industry, it is being hit by significant rises in cuts across the board. February saw a 4.3% rise in food prices, marking the highest rate of increase since 2013.
“The scale of food price inflation over the course of this year, coupled with the overall level of market demand as the cost of living increases, particularly rising energy costs, is difficult to predict,” the company said. “We intend to continue to offer the best possible value to customers while recognising the overall level of pricing in the market.”
Shares in the online supermarket closed down 8.2% on Thursday, marking it the biggest faller on the Financial Times Stock Exchange 100 Index.
The UK Technology Sector
UK technology stocks have seen a drop in their share price this year. So, what has happened to the UK tech sector? And are shares at rock bottom, or is there still an opportunity for some short selling?
The decline in Ocado’s sales has come after an increase in in-person customer transactions which were subsequently offset by a steep fall in the amount being spent online. As the UK population has returned to its pre-Covid habits, UK big tech has seen a reversal in the fortunes it had acquired over the pandemic.
Besides Ocado, other tech companies such as Halma have also suffered recent losses in their figures. Halma – the life-saving technology firm – which has a market cap of over £8 billion has also been down 30% this year.
The retail market has evidently felt the impact of inflationary woes. As the cost of living rises, central banks raise interest rates, and the price of goods increases, it is certain that the UK technology sector is feeling the effects of a world returning to pre-pandemic habits.