David Prosser: Ocado's delivery was all wrong

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Outlook What a mess. As a consumer- facing business Ocado lives or dies by its ability to interpret the needs and desires of a diverse bunch of customers. So how come it – and the eight investment banks it employed to get its IPO away – so badly misread the mood of the investors to whom they hoped to sell shares?

The conclusion one must draw from the events of the past few days, culminating in the 11th-hour price cut last night, is that investors did want to buy Ocado's stock, despite the scepticism of many in the City about the company, but not at the daft price tag attached to the shares.

From the beginning of this process, Ocado's would-be shareholders told the company and its advisers exactly that, both in public and in private. Why on earth did it take so long to get the message? It's not as if other new issues were storming ahead: the withdrawal of the IPO of Fairfield Energy last week may have been in another sector of the market entirely but it should have dispelled any doubts Ocado had about the sincerity of those who were questioning its heady valuation

Nor in the end has the gimmicky retail offering done Ocado any favours. You can see why it thought offering shares to loyal customers would be a cute trick, but as it turned out, the inclusion of the retail offer simply muddied the waters.

This is not the ideal way to start life as a public company, particularly since so many analysts regard Ocado's flotation as more of a rescue rights issue. The suggestion being touted last night by certain company advisers was that the price cut reflected a desire to get a better class of investor on board: that simply looked desperate.

Ocado's argument all along has been that it should not be valued using the same set of metrics one would apply to a conventional retailer. It is not wrong: this is first and foremost an online distribution business, rather than a grocer. The product it happens to sell is genuinely secondary to the process through which it interacts with its customers.

That does not mean, however, that an inflated valuation was justified, especially as this is a company that has never made a profit and stands little chance of doing so in the immediate future. For a business predicated on listening to its customers, Ocado has got this badly wrong.