Amazon: The Digital Wal-Mart of the Web
Amazon vs. Wal-Mart, YTD Returns
NY TIMES -- Fifteen years after Jeffrey P. Bezos founded the company as an online bookstore, Amazon is set to cross a significant threshold. Sometime later this year, if current trends continue, worldwide sales of media products — the books, movies and music that Amazon started with — will be surpassed for the first time by sales of other merchandise on the site. (That transition already occurred this year in its North American business.)In other words, in an increasingly digital age, Amazon is quickly becoming the world’s general store. Alongside the books and CDs and DVDs are diapers, Legos and power drills, not to mention replacement car clutches and more arcane items like the Jackalope Buck taxidermy mount ($69.97).
“Amazon has gone from ‘that bookstore’ in people’s mind to a general online retailer, and that is a great place to be,” said Scot Wingo, chief executive of ChannelAdvisor, an eBay-backed company that helps stores like Wal-Mart and J.C. Penney sell online. Mr. Wingo envisions e-commerce growing to 15% of overall retail in the next decade from around 7%.
MP: Year-to-date (YTD), Amazon stock is up by about 80% vs. Wal-Mart, which has declined by about 10%.
11 Comments:
I buy all sorts of stuff from Amazon. Not just books. In the last two years my non-book purchases were more than twice my book purchases.
Yeah, Amazon has come in handy on more than one occassion for me also...
MP noted the following: "Year-to-date (YTD), Amazon stock is up by about 80% vs. Wal-Mart, which has declined by about 10%"...
It couldn't due to bent politics by crazies could it?
I remember all the money Amazon was losing when they started. It looked like the thing was never going to get off the ground
One factor not noted here is the stage of corporate life the two companies are in. Amazon is relativly younger than Wal-Mart. The growth rate in revenues is likley higher because Amazon has not yet saturated the US market like Wal-Mart has nearly done. Recall that at its peak Sears was nearly 1% of GDP. Wal-Mart says 63% of its sales of $400 billion are in the US so around $ 240 billion is a round number so Wal-Mart at in the 1.8% range is bigger than Sears at its peak in the 1950's. Amazon's revenue is only about $20 billion, less than 1% the size of Wal-Mart.
Note that inside Wal-Mart is a mini-amazon, that has the advantage of doing its own shipping with site to store shipping using the existing fleet of trucks for little variable cost for the shipping. (Walmart.com carries a lot of things not carried in stores)
Let's put a 5% federal sales tax on all internet sales and use that for health care.
Short AMZN and go long WMT. Let's look at fact. They get the same returns on equity (ROE = ~20%). The ultimate driver of stock returns over time regardless of the growth stage of the company. Unless the the ROE change dramatically for one or the other (I see no reason why), over time their stock returns will be very similar. Remember to include dividends for WMT when comparing returns. WMT maintains a high ROE by paying dividends.
Wal-Mart is pretty countercyclical. If you look at the 1 year or 2 year graphs, you'll see that Wal-Mart went up when everything else was going down, and Amazon went down a ton (after going up a ton in April 2007). That makes sense for WMT; they're fundamentally a discounter, so they do well when people are cutting back.
"WMT maintains a high ROE by paying dividends"...ROE is not affected by a company's dividend policy///the formula for ROE is net income divided by shareholder's equity.
*Shareholder* returns, however, do need to consider dividends, and in general, for a more mature company the dividends will be increasingly important vis-a-vis share price appreciation/
David,
ROE is absolutely affected by dividend policy. If a company retains earnings (i.e. does not pay earnings out as dividends) then the equity base of the company grows therefore increasing the denominator in the ROE equation.
I shop used on eBay and Craigslist. I am even cheaper than that skinflint No 1.
Colin...absolutely correct if you look at the company over multiple years (as you should)...I was thinking about the calculation at a particular point in time.
thanks
Post a Comment
<< Home