Amazon as an Investment (compared to Walmart)
Perhaps you have heard of the new concept being tested by Amazon, where you walk into their grocery store, select all your items, and then walk out without “checking out”. As you leave, their technology scans all your items and then immediately takes it from your Amazon balance or credit card. This was their apparent strategy when they make the eyebrow raising acquisition of Whole Foods.
Amazon has certainly been an innovator and industry disrupter over the years, first focusing on books (essentially putting brick and mortar book stores like Barnes & Nobel out of business, or forcing them consolidate/go niche), then more general items (pressuring small brink and mortar retailers). Of course, Amazon Web Services have been taking over the cloud industry as well. This latest move and testing to innovate the grocery industry certainly appears ready to solve one of the biggest complaints from shoppers – LINES.
From an investment standpoint, Amazon has been a homerun for those who have held the last 5 years with a return of over 400%. The stock has soared as revenues have grown, and it is the 4th most valuable company in the world, based on market capitalization. Revenues reached over $150 Billion in 2017.
Honestly, I have a hard time getting excited about investing in Amazon, as the valuation and financial ratios do not make sense to my “accountant brain”. Many of my retirement mutual funds hold Amazon, but when it comes to buying individual stocks, I have stayed away (which was not a great move in hindsight).
On the opposite side, I own Walmart as an individual stock position. I can’t seem to make the Amazon investment make sense when comparing it to Walmart. For example, Walmart’s revenues are 3 times higher than Amazons ($490B for WMT vs $160B for AMZN), but Walmart’s market cap is less than half of Amazon’s (WMT $315B vs AMZN $659B). Also, they are both profiting around $4 per share, but Amazon’s share price is 10x higher (AMZN pps of $1,365 vs WMT pps of $106), so the Earnings Per Share (“EPS”) ratio is completely out of whack for Amazon at 350, when a normal company trades at an EPS ratio of 15-20. Since Amazon has only recently become profitable and is still trying to grow, they do not pay any dividends, while Walmart has a dividend yield of 1.95%.
Yes, I understand Amazon is still growing and innovating, while Walmart’s future is not as rosy (though not bad with expanding online services and acquisitions). I just can’t get my head around the valuation or financial ratios, and I feel that if revenues were to flatten or outlook/sentiment was to turn, the risk for a huge loss is there, as the company is so highly valued already.
Do you agree with me, or am I crazy for staying away?
I should also say congratulations to those who have been holders for a while... well done!
Brian
Another great topic! Of the FAANG stocks, I'm invested in Apple the most, with some of Facebook. Amazon's valuation doesn't quite make sense to me, but I think it will still go up. Netflix is another valuation I just don't get. I think you're doing the right thing with Walmart. They really turned their business around in 2015-16 when they started to focus on online sales to rival Amazon. It paid off.
I'll throw this out as an alternative. I recently put on some money into Alibaba, the Chinese Amazon. It's still priced relatively cheaper and I think it has room to grow.
I agree about Netflix... I can’t get behind that valuation either but somehow they continue to grow. Alibaba is a good investment... good luck!
You can see also the video of the real store:
Thanks for your advice I always thought that in Amazon I could only buy and nothing else
I agree. I don't think if I had $1,200 right now for stocks that I would put it into Amazon. Like you said, the valuation is sky high.
I very often hear and read about the fact that Amazon introduces cutting-edge innovative technologies that make life easier for consumers. The new concept is definitely a cool technology, which in the near future (subject to the success of testing and further implementation) will be widely used by others.
I also like their developments in the field of transportation services. That is, the delivery of goods with the help of drones, investment in the sector of unmanned vehicles. This is the future and proceeding from these facts, Amazon will be a lucrative option for long-term investments.
When we are considering companies like Amazon and Tesla, all that investors do is to discount future revenue and profits made by amazon. The super expansionary policy they are implementing makes ot almost impossible to be profitable. I really think that at the moment wallmart is a better investment as they are closing tge online gap with amzn. If I remember correctly they purchased jet.com Also I would like to add that you should definitely invest only in companies you believe in (long term)
Brian I think you might be interested in my article about the blockchain-related ETF's, which started trading recently. You can read the article HERE.
I would be very happy if you can give me some feedback :) Thank you for this article, really interesting topic.
I'm not that in to Amazon, but I read a case for school about their practices and they say they are the best in failure because this will lead to the ultimate success... So if you're lucky, you're investing in their success but it can go drastically wrong as well. So yeah, I understand what you say and there is always a risk!
I really like their shopping without checking out, that is something they really go ahead with!
I wish I knew anything about stocks. I do a lot of shopping on Amazon and try to never shop at Walmart. I strongly feel that Walmart doesn't take care of their employees, the ones who do the work that makes the company successful.
According to Glassdoor.com (looking at the 2 lowest paying positions):
It may not sound like a big difference but to that individual who had been working 40 hours a week for years for Walmart and struggling to make ends meet it's their entire world.
Walmart is everywhere. They're low prices put small businesses out of business and in some areas of our country they are one of the only employment options. They make billions while their hard working employees need government assistance.
It is clear that the Amazon market is trying to develop its potential for consumers who repeat the site and there is news that the platform is about to deal in digital currencies
Thanks for your suggestion, it always occurred to me that in Amazon I can only buy and nothing else