LOSS MAKING ONLINE GROCER VALUED AT £3 BILLION – Ocado, an online grocery delivery service, started 14 years ago by its founder Jason Gissing, 43, has just hit a record high on its stock price valuing the company at a staggering £3 billion.
Ocado certainly has seen exponential growth over its 14 year history; it now has 1,450 delivery vans, sells over 1.4 million products to some 25,000 homes a day and has approximately 360,000 loyal customers whose numbers continues to grow.
All in all Jason Gissing’s brainchild evidently is an online raving success and as such most won’t be surprised to hear that with such figures that his company is worth £3 billion; well that is until they are told that since commencing operations Ocado hasn’t made a single penny in profit, in fact the annual losses are staggering.
Yesterday Ocado revealed that despite growing sales of 17% last year the company recorded an annual loss of £12.5 million; this was up by more than £600,000 on the previous year’s trading.
Traditionally businesses are valued on their ability to generate revenue at the lowest possible cost therefore resulting in high profits. So how do you value a company that has never made a profit at £3 billion and how does a company like Ocado manage to stay afloat with such vast loses?
It’s interesting to note that Mr. Gissing is about to step down as Chairman; according to reports he wants to spend more time with his wife and children, which is a wonderful pursuit if you can afford it.
Currently Mr. Gissing is paid £330,000 annually for operating his loss making venture; again most people will be astonished how such a salary could be awarded if the business isn’t making any money… or rather in this particular case bleeding cash.
Despite the financial situation of Ocado, if Mr. Gissing were to step down tomorrow and sell his stock he’d be sitting on a £90 million nest egg – again sounds like great work if you can get it.
In the last year the price of Ocado stock has risen from 102p to a colossal 522.9p making Ocado one of the fastest growing online companies in Britain and puts the likes of Tesco, Sainsburys and Marks & Spencer to shame.
So how does Ocado stay afloat or rather how has it managed to increase its share price so dramatically despite the vast losses?
It all comes down to one thing… investors. Yes if you can find the right investors and a quantity of them that believe that the future will produce huge dividends then you’re in with a good chance of keeping an evidently failing company in operation.
There are some City analysts that think Ocado, despite having a first class website and outstanding customer service, will eventually fall foul to market forces for the margins in grocery items are just too small.
All companies have to start somewhere and are mostly built from the ground up but at some point you have to start generating revenue and you have to make a profit.
Investors are generally a sceptical bunch of people and will demand that either profits are realised within a set period of time or they’ll pull future funding.
Almost all of the large online corporations started out from dorm rooms or garages but quickly realised that to be able to keep up and produce future growth external capital was required.
Again investors do require a return and will often forsake smaller profits for potential larger gains in the future if they feel such is possible and according to Ocado’s CEO co-founder Tim Steiner that’s exactly why the company hasn’t posted any profits.
According to Mr. Steiner the company could have made in excess of £40 million last year but shareholders wanted the money reinvested to help the company grow at a faster pace; Mr. Steiner told reporters that the investors were not interested in making a few million pounds but rather billions of pounds if the company can continue to grow at its current rate.
I sometimes wonder where all this will end; in my youth we talked of successful companies being worth millions. Today the figures are in the billions and if Google’s growth continues it’s likely within the next few years it will become the first corporation ever to be valued at US$1 trillion.
For me I’d be happy with a couple of hundred quid each month and a packet of cheese and onion crisps with my lunch; that’s if I had lunch.
If you are thinking about starting your own online businesses do your research first and don’t get too disheartened if it doesn’t appear as easy as some pundits claim.
The key to a successful online business is to find something you truly love doing; for me it’s expressing an opinion on issues I find interesting. With such you will find that it’s not so much work but rather a labour of love.
I can tell you that for most online entrepreneurs it’s a lonely job and getting external funding from a venture capitalist or business angel is no easy task.
The only advice I can give is to keep doing what you love and don’t give up; at the last count some 90% of all websites started were abandoned within the first 3 months after their creators finally realised you don’t make vast sums of money instantly as so many of the ‘get rich quick’ guru’s will have you believe.
I’m afraid those entities such as Google, Facebook, Twitter, Tumblr and even Ocado are few and far between and us mere mortals generally struggle to afford to pay the hosting fees on a monthly basis.
Despite this I wouldn’t want to do anything else for I truly love what I do and who knows, one day I might be able to sell up and retire… well it’s a nice dream.