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Brian Mathews Dec 29, 2017
With Amazon Inc. (AMZN ) king of the e-commerce market and Wal-Mart Stores Inc. (WMT ) king of the brick-and-mortar retail market, these companies were rarely considered direct competitors with each other. In today’s landscape, both have made huge headways into each other’s territories in an effort to be the single leader in the retail universe.
Wal-Mart is known for its large superstore, one-stop shopping locations that have penetrated nearly every neighborhood in the United States. Since then, Wal-Mart has purchased Jet.com in 2016 for $3 billion, which boosted the company in the e-commerce market. With its online sales representing only $16 billion of its total revenue in fiscal 2017, Wal-Mart is looking to the future for even more growth.
With 11,700 physical locations, Wal-Mart is leveraging locations closest to its consumer base to potentially win out in the upcoming fresh food delivery system. With both e-commerce and storefront locations working in unison, Wal-Mart expects to grow its online sales nearly 30% every year for the next three to four years.
In an effort to compete directly with Wal-Mart’s food delivery retail business, Amazon made a splash in the headlines when it purchased Whole Foods Markets in June for $13.7 billion. Doing this vastly upgraded the Amazon Fresh service, which the company hopes to fully implement over the next few months. Amazon is already the clear leader in U.S. online sales with over $120 billion, but it is hoping to gain additional sales by gaining new consumers who are interested in fresh grocery products being delivered directly to their homes.
From an earnings perspective, Wal-Mart has been, and still is, the clear leader in this category. In 2016, Wal-Mart brought in over $14 billion in annual net income, considerably more than Amazon’s $2.3 billion. From an annual net-income margin perspective, Wal-Mart also betters Amazon, with an over 3% or higher margin rate every year since 2008.
From a sales perspective, Wal-Mart’s figures are over three times that of Amazon’s, with over $482 billion in 2016 versus Amazon’s $136 billion. Although Amazon’s sales have consistently been on the rise since 2008, it still has a long way to go when compared to Wal-Mart’s sales figures. However, Amazon shows more promise in its growth rate with an average of 28% since 2008, much higher than Wal-Mart’s average sales growth rate of 3%.
From a stock-price perspective, any investor would be very happy having invested in either Wal-Mart or Amazon over the last ten years. However, Amazon is the clear leader in every category over Wal-Mart. Over the last ten, five and three years, Amazon’s stock has an average return of 28.5%, 35.8% and 56.0%, respectively. By comparison, Wal-Mart’s stock had returns of 9.6%, 9.9% and 8.4% for the same time periods. Like most of the market, both Amazon and Wal-Mart stocks are up on a year-to-date basis. However, Amazon is performing better with a return of 56.93% versus Wal-Mart’s 42.88%.
When comparing the two companies, Amazon has taken over as the larger company as of 2016. However, prior to that, Wal-Mart was consistently the leader. In 2008, Wal-Mart had a market capitalization of $219 billion, and as of today, it is over $288 billion. Although the current figure is higher than it was ten years ago, it was only an increase of 31.5%. Amazon on the other hand has had rapid growth in its market capitalization. In 2008, Amazon only had over $38.5 billion in assets. Today, it has over $356 billion, nearly ten times the 2008 amount.
On a price-over-earnings perspective, Amazon has had a very historically high ratio. In 2008, its P/E was 34.40. In 2012 and 2014, the company had negative earnings and therefore no P/E ratio. However, with the stock’s rapid stock appreciation over the last ten years, in 2013, it saw its P/E at 1,428.60 and at 909.10 in 2015. As of 2017, Amazon has a very high P/E of 302.10, which is due to its stock price being well over $1,000 per share.
Wal-Mart has a more steady P/E multiple, which is a common characteristic of blue-chip stocks. In 2008, the P/E was at 16.40, and in 2017, it is at 26.30. However, the company has only recently broken the 20 mark range this year, especially with the stock up over 40%. However, this is an anomaly, with Wal-Mart’s P/E multiple typically ranging from 13.20 to 17.90.
Wal-Mart remains the leader in the free cash flow area as well, with over $15.9 billion in 2016, much higher than Amazon’s $9.7 billion. Wal-Mart has also been consistent with its free cash flow, having double-digit figures since 2009. Amazon’s free cash flow has been more inconsistent, which is due to the various dips in net income over the years. Although it went from $1.36 billion in 2008 to $9.7 billion in 2016, the company saw cash flow declines in 2012 and 2014.
Since Amazon does not pay a dividend, Wal-Mart is the winner by default in this category. Wal-Mart has shown an excellent track record of raising its dividend 41 consecutive years in a row.
Wal-Mart has not only shown that it has consistency in raising its dividend every year, but also with how much it raises it. In four of the last ten years, Wal-Mart raised its dividend by more than double-digits, with the highest hike in 2012 with a 20.66% increase. Although it has incrementally increased its dividends in the last three years, Wal-Mart still maintains a 9.15% average dividend-growth rate since 2008.
Wal-Mart is a Dow 30 Stock. To see other Dow 30 stocks, click here.
As of December 20, 2017, Amazon has three times as many followers as Wal-Mart on Twitter with over 2.7 million followers. However, Wal-Mart has more followers on Facebook with 32.1 million followers, which is higher than Amazon’s 27.4 million followers.
Wal-Mart continues to shine when looking at its dividend-payout history. In 2008, the stock paid its shareholders an annual amount of $0.88. As of 2017, the annual dividend is now $2.00 per share, which is over 127% higher than its 2008 payout. On a pure yield basis, Wal-Mart has also grown over the last ten years. In 2008, the stock was yielding 1.86%. Today, it is yielding 1.00% higher at 2.89%.
Check out the dividend history of Wal-Mart Stores here.
In terms of advertising dollars, Amazon is the leader in this category with over $7.2 billion spent in 2016. This is more than double the amount of Wal-Mart’s spending of $2.9 billion.
So if you were to look at the figures above, Wal-Mart is the clear winner because it won in six of the ten categories. However, three of those categories were based on dividend history, which Amazon does not have. For investors looking to choose one stock over the other, it would depend on their particular risk-versus-reward requirements. Wal-Mart is clearly the more consistent company, with regular dividend payments and increases. It is also steadier in terms of net income, margin, sales and free cash flow. With these steady figures, investors have managed to have an average annual return of 9.6%.
Investors who are looking for more growth opportunities could look to Amazon, especially since it had nearly three times the average annual return than Wal-Mart over the last ten years. However, with high-flying returns comes inconsistency, especially when it comes to Amazon’s net income, sales and free cash flow.
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