It is official Amazon (NASDAQ: AMZN) now outsells Walmart (NYSE: WMT). The New York Times estimates customers spent more at Amazon than Walmart over the past year.
In detail, customers spent $610 billion at Amazon in the 12 months ending on 30 June 2021. In comparison, customers spent $566 million at Walmart (WMT) in the 12 months ending on 31 July 2021. Note: The Times bases this claim on data from FactSet, I could not find online.
That means Amazon (AMZN) is the biggest retailer outside China. Alibaba (BABA) is still the world’s largest retailer because of its domination in the Chinese market.
Walmart vs. Amazon
So which retail giant is better Amazon (AMZN) or Walmart WMT)? Mr. Market’s answer is Amazon. He paid $3,305.78 for AMZN on 24 August 2021. In contrast, Mr. Market paid $148.90 for Walmart on the same day.
Conversely, some metrics show Walmart is better. For example, Walmart reported quarterly revenues of $141.048 billion on 31 July 2021. Walmart reported a quarterly gross profit of $35.865 billion and a quarterly operating income of $7.354 billion on the same day.
In contrast, Amazon reported quarterly revenues of $113.08 billion, a quarterly gross profit of $48.04 billion and a quarterly income of $7.702 billion on 30 June 2021. Hence, Amazon’s quarterly gross profit and quarterly operating income exceed Walmart’s with smaller quarterly revenues.
Thus, Amazon can make more money than Walmart. In addition, Stockrow estimates Amazon’s revenues grew by 27.18% in the quarter ending on 30 June 2021. Comparatively, Walmart’s revenues grew by 2.4% in the quarter ending on 31 July 2021.
Amazon is growing faster than Walmart. Thus, I argue that Amazon could have a greater margin of safety than Walmart.
Amazon vs. Walmart
Amazon (NASDAQ: AMZN) generates more cash than Walmart. Amazon reported a quarterly operating cash flow of $12.715 billion and a quarterly ending cash flow of $6.512 billion on 30 June 2021.
However, much of that cash comes from borrowing. Amazon reported a quarterly financing cash flow of $15.643 billion on 30 June 2021. Amazon’s total debt grew from $90.671 billion on 30 June 2020 and $122.390 billion on 30 June 2021.
Walmart reported a quarterly operating cash flow of $9.565 billion and a quarterly ending cash flow of -$13 million on 31 July 2021. Thus, Walmart generates less cash than Amazon.
However, Walmart generates less debt than Amazon. Walmart reported a quarterly financing cash flow of -$6.16 billion on 31 July 2021. Notably, Walmart’s Total Debts fell from $69.494 billion on 31 July 2020 to $45.821 billion on 31 July 2021.
What Value do Amazon and Walmart have?
Walmart (NYSE: WMT) still has enormous value. Walmart had $22.831 billion in cash and short-term investments and $238.552 billion in Total Assets on 31 July 2021.
Meanwhile, Amazon had $90.159 billion in cash and short-term investments and $360.319 billion in Total Assets on 30 June 2021. Thus Amazon has more value than Walmart.
I think Mr. Market is correct when he gives Amazon a higher share price. However, I still think Mr. Market grossly overvalued Amazon at $3,199.95 on 20 August 2021.
I attribute Amazon’s high share price to its popularity with ordinary people. To explain, all the people who enjoy ordering stuff from Prime and watching Prime movies buy Amazon stock because they love Amazon.
Thus, I consider Amazon a great company that Mr. Market overprices. However, Walmart still has some attributes.
Some Walmart Attributes
Walmart (WMT) still has many attributes, including 10,500 stores operated under 48 brand names in 24 countries. The vast Walmart footprint includes 4,470 US Walmart stores, 599 US Sam’s Club stores, and 5,185 Walmart International locations.
Interestingly, Amazon (AMZN) management is envious of Walmart’s store footprint. Investors Business Daily claims Amazon is planning several US discount stores in Ohio and California. The Amazon brick-and-mortar discount stores could be around 30,000 square feet in area or less than one third the size of a Walmart supercenter.
My guess is that Amazon management hopes to reduce shipping costs by giving customers a local pickup alternative. Additionally, they could use the Amazon discount stores as a shipping point for Amazon online orders.
I think the Amazon discount stores could be mini-fulfillment centers. However, the stores will be open to the public for customers to pick up items. One advantage to that arrangement is that will allow Amazon to accept cash payments.
Thus, Walmart already has some of the physical attributes Amazon’s management wants. In particular, Walmart can use its supercenters as auxiliary fulfillment centers.
More Walmart Attributes
From an investment standpoint, Walmart (WMT) is a lower-priced stock with a high margin of safety.
Remember, Walmart has enormous amounts of cash and shrinking debts. Moreover, Walmart paid off debts during the pandemic.
Additionally, Walmart pays a dividend while Amazon does not. Walmart will pay 55¢ dividends on 7 September 2021 and 3 January 2022. The quarterly dividend grew from 54¢ on 1 April 2021. Overall, Walmart shares offered a $2.20 forward annualized dividend a 1.45% forward dividend yield on 24 August 2021.
In the final analysis, I think Walmart is the better stock and Amazon is the better company.I think Amazon will continue to grow, but I believe Walmart is the better stock for ordinary investors.
Originally published at https://marketmadhouse.com on August 24, 2021.