Amazon.com Inc. (NASDAQ: AMZN) is not actually bigger than Walmart Stores Inc. (NYSE: WMT) despite numerous articles claiming that it is. Amazon’s newfound “size” is the result of very selective reading of financial reports rather than actual size.
A quick glance at the financial numbers provided by YCharts.com demonstrates that Walmart is the far bigger and richer company. The claims that Amazon is “bigger than Walmart” are based on specific figure market capitalization, or “market cap,” which is the estimated value of all of Amazon’s stock, not of Amazon’s actual business.
On July 28, 2015, Amazon had a market capitalization of $247.95 billion (€224.50 billion) in contrast to Walmart’s market cap of $229.69 billion (€207.97 billion). Interestingly enough, market capitalization, which is based solely on stock share price, was the only area where Amazon.com actually exceeded Walmart in growth.
A look at the numbers shows us that Walmart is a far larger, richer and healthier company than Amazon.com is and will be for the foreseeable future. Here are some other numbers that demonstrate that it will be a long time before Amazon approaches Walmart in size:
Numbers Tell the Real Story
The first number that we must take a look at is the enterprise value, which is an analyst’s estimate of the value of the company’s business. The enterprise value for Amazon.com on July 27, 2015, was $242.79 billion (€219.83 billion), while the enterprise value for Walmart on the same day was $271.25 billion (€245.60 billion).
In that figure, Amazon.com at least approaches Walmart; in almost every other estimate, Walmart dwarfs Amazon.com. Perhaps the most telling figure is revenue, which represents a company’s sales.
Walmart reported a TTM revenue number of $485.52 billion (€439.60 billion) on April 30, 2015. Amazon.com reported a TTM revenue figure of $95.81 billion (€86.75 billion) on June 30, 2015. Walmart’s revenue is almost five times larger than Amazon.com’s.
Okay, to be fair, Amazon’s revenue is growing much faster than Walmart’s. Amazon reported a quarterly year to year revenue growth rate of 19.88% on June 30, which is impressive. Walmart reported a growth rate of -.12% on June 30.
Yet even at that rate, it would take a long, long time for Amazon to catch Walmart; 19.88% of $95.18 billion is $19.05 billion (€17.25 billion), meaning that Amazon’s revenue would still be less than half that of Walmart’s even after 10 years of growth at that rate. If Amazon’s revenues keep growing at 19.88% a year, it would increase revenues by $190.50 billion (€172.48 billion), giving Amazon a TTM revenue of $285.68 billion (€258.66 billion).
Interestingly enough, Amazon.com is not even the second or third largest retailer in the United States. There are at least three American brick and mortar retailers that have revenues that exceed Amazon’s. They are club store operator Costco Wholesale (NYSE: COST), which reported a TTM revenue of $115.94 billion (€104.98 billion) on May 31, 2015; the giant grocer Kroger (NYSE: KR), which reported a TTM revenue of $108.56 billion on April 30, 2015; and the drug store operator and health care plan administrator CVS Health (NYSE: Health), which reported a TTM revenue of $143.01 billion.
The revenue numbers indicate that reports of Amazon’s size are greatly exaggerated. Even though its sales are impressive, the Everything Store’s revenues are still below those of some brick and mortar stores.
Does Amazon Make Money?
Beyond revenue, there is the all-important question, does Amazon make money or lose money? The sorry truth here is that Amazon does not make money for itself or its shareholders.
On June 30, 2015, Amazon.com reported a net income of -$188 million (€170.22 million), meaning that Amazon was actually losing money. On April 30, 2015, Walmart reported a net income of $16.11 billion (€14.59 billion), which indicates that Walmart’s business made a lot of money. To add icing to the cake, Walmart’s business also generated quite a bit of cash. The retail giant reported a free cash flow of $2.243 billion (€2.03 billion) on April 30, while Amazon reported a free cash flow of $784 million (€709.86 million) on June 30, which indicates Amazon’s business does generate some cash.
The numbers indicate that despite all its impressive growth, Amazon is not yet making money. It is still losing money on its operations, which makes the idea of it ever overtaking Walmart very hard to believe.
What Does Amazon.com Really Offer Stockholders?
Naturally, many cynics will ask, what are Amazon.com stockholders really getting for the high share price they pay? Amazon was trading at $528.27 (€478.31) a share on the morning of July 28, 2015. The sorry answer is not much.
Amazon.com paid investors no dividend and offered a return on equity of -1.73%. It also provided a diluted earnings per share (EPS) figure of -0.4198 and a profit margin of .4%. The only way a person could make money from Amazon.com stock would be to hope it increases in value and sell it for a higher price in the future.
Despite all the hype about its “size,” Amazon.com is a purely speculative investment. The stock itself seems to have little or no value beyond its popularity on the market, but what about Walmart?
What Walmart Offers Shareholders
Despite all the recent news stories about its troubles, Walmart is actually a very good stock with a lot to offer investors. It was also a very cheap stock trading at $71.40 (€64.65) a share on the morning of July 28, 2015.
Walmart offered investors a dividend yield of 2.72% and a return on equity of 20.77%. It also provided investors with a very impressive diluted EPS of 4.971 and a profit margin of 2.91%.
Walmart investors paid a lot less for the stock and actually made something from it. That makes Walmart a classic value investment.
Yes, Folks, Mr. Market Really Is Insane; Amazon Proves It
Basically, all the numbers prove is that a lot of people are paying far too much for Amazon.com stock. Amazon’s business is still far smaller than Walmart’s, and the available data indicates that it will stay that way for the foreseeable future.
What Amazon really proves is something that the great American investor Benjamin Graham said long ago: The market (which he called Mr. Market) is insane. A stock price or market capitalization does not necessarily reflect the true value of a company. Instead, it is only one of many numbers that should be examined before purchasing stock.
Amazon proves that it always pays to read the financial reports or numbers rather than the media hype. The true story is usually buried in the numbers, and in the case of Amazon, it is a very scary one. One has to wonder how long this hype and the bubble it is creating can continue and how much money Amazon investors are going to lose when it bursts.
