Sunday, February 24, 2013

High-level Comparison of Amazon vs. Wal-Mart

This is a high-level and admittedly simplistic comparison of 2012 financial performance of $AMZN versus $WMT.  Full disclosure: I own $WMT and have for a long time.  I don’t own $AMZN.
The numbers are from each company’s earnings release (linked below).   All ratios are calculated from GAAP amounts.

Sales: WMT $469.2 bil; +5.0%; an increase of $22.2 bil; AMZN $61.1 bil; +27.1%; an increase of $13.0 bil.  EBIT and EBIT margin: WMT $27.8 bil; 5.92%;  AMZN $0.7 bil; 1.1%. Net income: WMT $17.0 bil +11.1%; AMZN $(0.39) bil. Negative -NM;  ROE: WMT 21.6%; AMZN (0.5)%. (ROE was calculated using two-point average equity: beginning and end of year.)
EPS and growth: WMT $5.02 +11.1%; AMZN $(0.09) Negative - NM.

PE using trailing EPS and Feb. 23 closing prices: WMT 14.0; AMZN NA.   Market cap to Sales: WMT .50X, AMZN 1.97X.
I’m a regular shopper of both firms, frequenting Sam’s Club and Wal-Mart, and ordering regularly from Amazon.  I love Amazon’s smooth and helpful website.  And I’m increasingly unhappy with the length of checkout lines in both Sam’s and WalMart  (anybody from Bentonville reading this?) but that doesn’t mean I understand the investor infatuation with Amazon.  The theory apparently is that, at some date in the future, Amazon will expand its margin.  And then there will be earnings for investors.  But then does their business still work?  Shipping individual boxes to homes can never be as efficient as shipping truckloads to stores and having consumers drive to the store.  So margin expansion comes from pricing, not from be more efficient than WMT. And if they raise prices, then doesn’t their advantage go away?

 At the dawn of the Internet age, in a meeting in 1999, Boston Consulting Group consultants and Internet business CEOs told me that AMZN was clearly worth more than WMT.  Further, WMT’s growth was over.  Since then WMT has added $331 billion in revenue.  Oh, and WMT pays a dividend.
I didn’t get the valuation difference then, and I don’t get it now.  Although I would really like it if Wal-Mart traded at the Amazon price-to-sales ratio….