Friday, June 10, 2016

Here’s our annual high-level comparison of Amazon vs. Walmart.

From a growth perspective, Amazon wiped the floor with Walmart. AMZN added $18 billion in revenue for a 20.2% growth rate, while WMT shrank by $(3.5) billion or (0.7%).  WMT’s revenue was negatively affected by currency exchange rates moving against it, but even adjusting for that WMT’s revenue wasn’t in the realm of AMZN

From a GAAP earnings perspective, WMT maintains its lead, although that is diminishing. WMT’s GAAP operating margin was 5.0%, which was a 0.6 PPT improvement, while AMZN delivered 2.1% operating margin. However, AMZN’s margin improved a whopping 1.9 PPT.

WMT’s net income still dwarfs AMZN at $14.7 billion vs. $0.6 billion. But again, the change is informative: as WMT launched programs for higher associate pay and stronger e-commerce capability, its net income fell by 10.2% or $1.7 billion. Conversely, AMZN increased income by $0.8 billion from a prior year loss. While this is an annual comparison, I’d be remiss if I didn’t note that AMZN’s operating income exploded in the fourth quarter.

Cash provided by operations shows just how much AMZN is closing the gap to WMT in overall performance. WMT delivered a huge $27.4 billion in cash from operations, or 5.7% of revenue, but that was a decrease of $1.2 billion or a reduction of 0.2 PPT as a percentage of revenue. AMZN’s $11.9 billion of cash generated was 11.1% of revenue, a $5.1 billion increase and 3.45 PPT higher than the prior year.

WMT remains much better at returns on investment. Its ROIC was 12.8% compared to 3.6% for AMZN, and its ROE was 17.3% vs. AMZN’s 4.9%.  (Returns were calculated using a two-point BOY/EOY average).

Of course, valuation metrics are hugely in AMZN’s favor. As of this writing on June 10th, you’ll need to pay 296 times earnings to own AMZN at a price to sales ratio of 317%, while WMT can be purchased for 15.8 times earnings at a price to sales ratio of 46%.

Full disclosure, I own shares of WMT.