Retail sales through e-commerce have been on a steady growth path for years. According to Statista, from 2014 to 2019, the sales in e-commerce retail went up by more than 100% percent. The numbers from 2019 are expected to double again by 2023, according to their projections.
When we bisect a particular business niche, we’re always comparing the top brands to see what makes the industry tick. Amazon seemingly dominates the retail e-commerce niche, and it seemed that there was no other brand with comparable success - until recently.
Walmart, a powerful retail brand that has been dominating the retail market for years, has made some moves to jeopardize Amazon’s number one status seriously. The debate about which brand has more sway over the e-commerce domain started with Walmart’s acquisition of one of the top logistics providers within the e-commerce domain, Jet.com. This move showed their commitment to their success as an e-commerce retailer, but let’s see how they compare to Amazon today.
Financial strength and stability
The most straightforward way to compare two brands working within the same niche is to analyze their financial wellbeing. The reason for this is that companies that have a lot of cash at their disposal can navigate to keep their stocks healthy even during a financial crisis.
They do so through acquisition, buying back their own stocks at lower prices, lowering prices to outvalue the competition, and so on. Not only do these kinds of companies tend to survive financial crises - they usually bounce back stronger than before.
Amazon is currently sitting on around $41 billion while facing $23 billion in debt. Their free cash flow is around $22 billion.
Walmart has around $9 billion and has a debt of $44 billion. They also have approximately $17 billion in free cash flow.
This comparison doesn’t bode well for Walmart, as it seems that they are financially outclassed by Amazon. Even though both companies have substantial free cash flow, Amazon has a lot more options with its $18 billion net cash. Furthermore, Walmart has a massive debt of $44 billion, which they can manage by using the gigantic free cash flow but would create significant issues for them during a financial crisis.
While most of us can understand the financial comparison of two brands, valuation is a bit more tricky. This difficulty has to do with the nature of the metric itself. Basically, valuation boils down to being the emotional response of investors while buying and selling a particular brand’s stocks.
In our opinion, the best way to avoid inconsistencies when it comes to value by checking out the numbers related to their individual stocks. Check out the table we got from Yahoo! Finance.
As a stock investment option, Walmart comes up on top. Based on the earnings that Amazon makes, they are three times more expensive to invest in. And, based on the massive cash flow, they cost twice as much to invest in. If an investor opts for Walmart, they also get a dividend - they are the clear option to invest in between the two.
This is another statistical perspective that doesn’t bode well for Walmart. In the last three years, Amazon has experienced massive growth in both revenue and operating income.
We turned to Wall Street for approximations of future growth for these two companies, and here is how things stand.
Amazon is expected to keep its growth trend in 2019 and 2020, which stands at an 18% rise in its revenue. As far as the next five years are concerned, they are expected to grow to a massive 33% annual increase in revenue. This growth is mostly tied to Amazon’s ads and AWS.
The numbers are far more humble when we take a look at Walmart. They are expected to retain their 3% growth in revenue throughout the next two years. Within five years, they are expected to reach a 5% revenue increase with their investment in Flipkart.
It seems that Amazon is facing a period of unstoppable growth within the next half a decade, and few things can stop them. On the flip side, Walmart is looking at a period of steady but incremental growth. When it comes to growth, Walmart will need to pull something amazing out of their hat to get on Amazon’s level.
Of course, Wall Street experts have been known to be wrong before, so take their prognosis with a grain of salt. This is good advice for people who tend to make approximations based on the information provided by a single source. Don’t bet your money on a single expert’s opinion.
Well, there you have it, Amazon continues its reign as the king of e-commerce for the foreseeable future. Investors will have a better time investing in Walmart stocks as they can get a better return on investment but not much else than that.
Not to throw shade on Walmart here, they are a stable company that keeps making the right moves and continue to grow. They are expected to grow and are making good money, but they are far from throwing a shadow over Amazon’s operations.
While Walmart relies on its low-cost production and brand value to remain competitive, Amazon has a few more tricks up its sleeve. Amazon can match the moats Walmart has, brand value, and low-cost production, but they have a few unique moats of their own. They are also famed for having an effect that pulls in the third party merchants, and their high switching-cost capabilities allow them to remain on top of the e-commerce game.
We hope you enjoyed this comparison, and we’ll keep tracking the development when it comes to these two brands going head to head.