Rapper Ice Cube is credited with first using the phrase “It’s on like Donkey Kong!” in mainstream media– way back in 1992 on his ‘The Predator’ album. Both Ice Cube and the phrase are still going strong today, and no doubt more than a few investors watching the stock market used it recently in conjunction with the performance of Amazon.com versus Walmart.
Shares of Walmart (WMT) fell more than 10% on their reports that estimated growth over the next three years to be only 3% to 4%, with profits dropping up to 12% in fiscal 2017. Shares of Walmart are down 30% in 2015—with more than $83 billion in market value having been lost over the same time period.
Who’s to blame? Analysts cite online retailerAmazon.com (AMZN).
Shares of Amazon have soared so far this year 75.7%. Yes, you read that correctly—more than 75% stock price growth in one year , and this accomplished while the Standard & Poor’s 500 is down 2.9% over the same period.
Who’s better? Seems clear cut, right? But, as with most things in the stock market, it’s usually wise to take a closer look before taking a flyer.
Analysis from thestreet.com offers some interesting data: Amazon generates less than 20% of the sales of Walmart. Annual sales in August for the prior 12 months indicated that Amazon had annual sales of $96 billion, versus $485 billion for Walmart. That’s not just bigger—Walmart is MUCH bigger. For every $100.00 that Amazon sells, Walmart sells $505.21.
But perhaps that’s still not the biggest story. What about profits? When you buy a share of stock, you’re buying a piece of a company. So which company would you rather own— the one that lost $188 million last year, or the one that generated a net profit of $15.8 billion? Yes, that was billion, $15.8 Billion with a capital ‘B’ in profit. Perhaps nothing else better underscores the vast amount of profitability thrown off by Walmart– versus Amazon, who struggles to have profitable quarters, much less profitable years.
So why is Amazon’s stock on fire? In a word, it’s growth. Amazon is perceived as the company with the most growth potential ahead of it. And indeed, it has performed at an annual growth rate of 29.42% over the last 5 years. Buying a stock is, for many investors, all about the growth potential inherent in the investment.
Of course, Walmart executives had something to say about that as well. “This is a growth company, it just happens to be a really large growth company,” said Walmart CEO Doug McMillon at the annual investor conference. The rate of growth is harder to maintain the larger the enterprise.
Naturally, Walmart would argue. But if that’s not enough for you… know that Walmart is one of Warren Buffet’s biggest holdings.
The moral is that there’s always more to look at in the financial world. Your choice whether to invest in Walmart or Amazon.com, or neither, is up to you and your own resources and personal financial objectives.
Both this is a fascinating scenario from a purely business standpoint. Both companies are very competitive, and can offer lessons from the sidelines as to how some of the biggest and best businesses in the world choose to run their affairs.
What do they focus on to add to their own bottom lines?
Amazon has long been focused on using their technological platform to become more things to more people… from their now tenured Sell on Amazon platform to compete with eBay to the recent rollout of Amazon Handmade, aimed at Etsy. Consumers as well as a variety of businesses are capitalizing on Amazon’s growth and opportunities, like the separate from Amazon site ilovetoreview.com, where Amazon sellers offer a discount on their product in exchange for an honest review. As ilovetoreview.com CEO Keith O’Brien, says, they are “an independent service provider that supports sellers and consumers within the Amazon platform in compliance with their terms of service.”
Inspiring not only people but completely separate companies to build their model of success on your success is one way of measuring why Amazon does so well. Certainly, Walmart has more of a traditional model. But that is changing—and rapidly.
For instance, look at the high-tech salvo Walmart just fired. Fast Company magazine called it a “swipe at Amazon,” and you can almost hear the ripping sound of muscles flexing. Some might know that Walmart has been building its own cloud data centers to help build online traffic. And apparently it’s been working– Walmart has doubled its online sales over a few years to more than $12 billion, with more than 22% online sales growth.
Walmart announced it will now open-source is code for the cloud, allowing developers to hop from cloud to cloud. This is important during busy times—for example, during the holiday season, the Walmart website can have ten times more traffic than is typical.
Amazon has been ahead of this for quite awhile—they are not only Walmart’s biggest competitor, but the leading cloud provider as well. But by making their code for the cloud publicly available, Walmart seems to be aiming straight at Amazon and strategically blocking ‘cloud lock-in,’ where developers can’t easily move their work from cloud to cloud. They’re potentially preventing Amazon from having a platform difficult to escape.
So the battle for the world’s biggest retailer position is definitely on. It’s on like Donkey Kong. And this battle is fought in the streets, and in the cloud.
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