Retail behemoths Amazon, Inc. (AMZN) and Walmart Inc. (WMT) have long been battling for the crown of the e-commerce king. While WMT remains the top dog in the global physical retailer space, its focus on expanding omni-channel retailing has allowed it to compete with AMZN’s strong grasp on the e-commerce market. Despite AMZN’s mammoth presence and massive market share, WMT has been able to restructure its operations to better position its brand in the e-commerce marketplace.
AMZN and WMT achieved unprecedented business ascendance as consumers and businesses increasingly went digital amid the “new normal” ushered in by the COVID-19 pandemic. A big uptick in online shopping and massive omni-channel marketing strategies have contributed to these companies’ double-digit gains. Because the trend of spending more time on smartphones, browsing through retail platforms, and searching online for discount deals is expected to continue, both AMZN and WMT should generate increasing revenues.
AMZN has gained 34.8% over the past year, while WMT has returned 14.8%. But in terms of their past three month’s performance, WMT surpassed AMZN’s 5.6% with 9.4% gains. So, which of these stocks is a better pick now? Let’s find out.
This month, AMZN and MGM Resorts International (MGM) entered a merger agreement under which AMZN will acquire MGM for $8.45 billion. The acquisition is expected to complement the work of Amazon Studios and enable it to offer high-quality content to its customers.
On May 26, AMZN’s AWS announced plans to open a new cloud infrastructure region in the United Arab Emirates in the first half of 2022. Greater cloud adoption in the region will position the company’s global infrastructure nicely, while giving customers the flexibility to run applications and store data locally.
This month, WMT entered a strategic partnership with fashion retailer GAP to introduce Gap Home, a new brand of home essentials available exclusively at Walmart.com. Because the company is focused on expanding its home assortment, this collaboration should enable it to offer stylish home goods and decor to its customers.
Also, this month, WMT agreed to acquire MeMD, a multi-specialty telehealth provider. The acquisition should not only allow the company to offer access to virtual care nationwide but should improve its omnichannel health delivery capabilities while improving customer engagement and outcomes too.
Recent Financial Results
During the first quarter that ended March 31, 2021, AMZN’s total net sales have increased 43.8% year-over-year to $108.52 billion. Its net income increased 219.8% from its year-ago value to $8.11 billion. However, the company’s total operating expenses rose 39.4% year-over-year to $99.65 billion. Also, its interest income came in at $105 million, representing a 48% decline from its year-ago value.
WMT’s total revenue increased 2.7% year-over-year to $138.3 billion in its fiscal first quarter, ended April 30, 2021, while its e-commerce sales increased 49% year-over-year. The company’s operating income grew 32.3% from its year-ago value to $6.91 billion. Its operating income under its U.S. segment increased 26.8% year-over-year to $5.5 billion over this period.
Past and Expected Financial Performance
AMZN’ revenue and EBITDA have increased at CAGRs of 29.5% and 47.3%, respectively, over the past three years. In comparison, WMT’s revenue and EBITDA grew at annualized rates of 3.7% and 6.5%, respectively, over this period.
AMZN’ revenue is expected to rise 18.6% next year. Consensus EPS estimates indicate a 33.3% improvement in the current year and 29.3% in its fiscal year 2022. In comparison, analysts expect WMT’s revenue to increase 2.4% in 2023. Also, the company’s EPS is estimated to increase 8.9% in the current year and 5% next year.
WMT’ trailing-12-month revenue is 1.34 times AMZN’s. But AMZN is more profitable, with a 40.5% gross profit margin versus WMT’s 25.1%.
However, WMT’s ROA and ROTC of 7.6% and 12%, respectively, compare favorably with AMZN’s 6.8% and 10.7%.
In terms of trailing-12-month Price/Sales, AMZN is currently trading at 3.90x, 449.3% higher than WMT, which is currently trading at 0.71x. Also, its 15.90x trailing-12-month Price-to-Book is 210.5% higher than WMT’s 5.12x.
In terms of trailing-12-month EV/EBITDA also, AMZN’s 29.12x is 159.5% higher than WMT’s 11.22x.
WMT has an overall A rating, which equates to a Strong Buy in our proprietary POWR Ratings system. However, AMZN has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In terms of Quality Grade, both AMZN and WMT have a B, consistent with their higher-than-industry cash from operations.
Both AMZN and WMT have A Sentiment Grades, which is in sync with analysts’ expectation that their EPS and revenue will increase significantly in the coming months.
WMT has a B Value Grade, consistent with its reasonable valuation. In comparison, AMZN has a C grade for Value.
Beyond what we’ve stated above, our POWR Ratings system has also rated both WMT and AMZN for Momentum, Growth and Stability. Get all WMT’s ratings here. Also, click here to see the additional POWR Ratings for AMZN.
Even though AMZN continues to dominate the e-commerce market after growing its sales and revenue significantly amid the pandemic, retail giant WMT has quickly emerged as a strong contender, challenging Amazon’s monopoly. The company continues to invest heavily in its online grocery and other platforms to strengthen its digital capabilities. In fact, it is in a much better position to capitalize on the stunning boom in e-commerce given its strategic partnerships and higher profitability. So, we believe WMT is a better e-commerce investment currently.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Internet industry. Also, you can access the top-rated stocks in the Grocery/Big Box Retailers industry here.
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AMZN shares were trading at $3,254.03 per share on Thursday morning, down $11.13 (-0.34%). Year-to-date, AMZN has declined -0.09%, versus a 12.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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