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StockBeat: Ocado, HelloFresh Live up to Expectations

Published 07/14/2020, 05:33 AM
Updated 07/14/2020, 05:36 AM
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By Geoffrey Smith 

Investing.com -- While it’s the big U.S. banks that will steal the headlines with their earnings today, the focus on Tuesday morning in Europe has been on a question that will be a recurring theme over the next two weeks: are tech companies delivering fast enough to justify their sky-high valuations?

The steam had already gone out of the sector’s rally overnight after California reversed much of its economic reopening in response to a surge in coronavirus deaths and infections, the clearest signal yet that the U.S. is paying the price for not taking the threat of Covid-19 seriously enough.

The mood was further darkened by UBS cutting its recommendation on music-streaming giant Spotify (NYSE:SPOT) – a rare example of European leadership in tech – arguing that the market is overestimating its ability to keep a lid on costs and monetize its content. (UBS also downgraded Netflix (NASDAQ:NFLX) to neutral from buy on valuation grounds).

So with valuations across the board suddenly under pressure, the reaction of HelloFresh (DE:HFGG) stock to the German meal kit provider’s second-quarter earnings is reasonably reassuring: it declined only 1.0% by mid-morning in Frankfurt, modestly outperforming the Stoxx 600, which fell 1.2%, and clearly performing the Tech DAX, which was down 2.7%.

HelloFresh said its adjusted EBITDA for the second quarter would be around 50% higher than the implied market consensus of 97 million euros. With the third quarter also off to a solid start – thanks not least to its business in the U.S., which accounts for nearly half of its users – the company raised its full-year forecast for revenue growth to between 55% and 70% from a prior range of 40% to 55%. It also raised the midpoint of its EBITDA margin range to 9% from 8% previously.

Ocado (LON:OCDO), the U.K. company whose technology powers online grocery shopping, also managed to live up to expectations with a 27% rise in revenue and a sharp narrowing of its pretax loss to 40.6 million pounds, thanks largely to a strong performance from its retail joint venture with Marks and Spencer (LON:MKS). Ocado shares, which have risen 57% this year, gave up only 1.2%.

In contrast to HelloFresh, Ocado wasn’t able to upgrade its outlook the year, partly because it has to start recognizing the heavy costs of its international partnerships later in the year.

In a quarter where outlooks may count for more than realized figures, that was enough to stop any major profit-taking, but not enough for it to buck the broader negative trend on Tuesday.  Ocado shares underperformed the FTSE 100 slightly, as strong Chinese data supported mining and energy stocks, keeping the U.K. benchmark's decline to only 0.4%.

 

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