What's going on?

Shares in British online grocer Ocado fell as much as 6% on Tuesday after it updated investors on its latest financial results. The problem seems to be that its technology costs keep rising�

What does this mean?

Ocado�s share price recovered somewhat as the day wore on, but investors were clearly impacted by the news that Ocado is spending more money on optimizing its new key technology. The technology enables robots in Ocado�s distribution centers to put orders into shopping bags without the involvement of humans (before they�re delivered to people�s houses). The higher cost burden overshadowed the relatively good news that Ocado�s sales grew 15% over the past year, outstripping growth at Britain�s traditional supermarkets.

Why should I care?

For the market: Ocado is changing its focus from online groceries to technology.

Ocado�s strategy is shifting to selling its technology to other grocery chains (although it will also keep selling groceries in the UK) � so that those chains can build out or improve their own online delivery services. Ocado has been saying for some time that it expects a deal with a major international grocer �in the medium term�, but investors are getting a little restless that one has yet to be agreed. At the heart of the question for investors is whether the technology that Ocado is developing will be valuable enough to justify its cost � and Ocado�s current stock price.

The bigger picture: Ocado is finding that building disruptive technology can be expensive!

The risk to a relatively small-scale grocer like Ocado is that it doesn�t generate enough revenue from selling groceries to fund its (expensive) tech initiatives. The shortfall can be made up with money from investors � but taking more money from investors is typically bad for a public company�s share price (since it means that existing investors would own proportionally less of the company as new shares would be created and sold).