Over the last three months one of the best ways to beat the S&P 500 has been Walmart (NYSE:WMT). You’ve still lost money on Walmart stock, but just 2% while stock in the average has lost 8.5%. Until Nov. 9, Walmart investors were holding a fat 9% gain for the year.
That’s because Walmart stock has been beating earnings estimates. Back in August, when the market looked better, Walmart’s beat sent the shares up 10% in a single day. The company delivered a similar result in November, but the reaction was different because the market was different.
Analysts are still expecting a very strong Christmas, with Walmart seeing earnings of $1.32 per share on revenue of $139.3 billion. That would bring total revenues to $514 billion, which sounds great until you realize it’s only 3% over last year’s $500 billion.
Walmart Stock and the Retail Business
It’s another reminder of two salient facts. First, Walmart is still twice as big as its arch enemy Amazon (NASDAQ:AMZN). Second, the two companies aren’t as similar as they appear.
While Amazon is a logistics company that does retailing, Walmart is a pure retailer. At its Dec. 10 opening price of about $93 per share, Walmart’s market cap of $270 billion is less than half its revenue, about $385 billion over the first three quarters. Even if it meets its Christmas estimates the company will earn just $6.7 billion for the year on that revenue.
Amazon, by contrast, has already earned $7 billion during 2018, on about $160 billion of revenue. That justifies its market cap of $796 billion, but there is no Walmart cloud.
More important, Amazon is increasingly a re-seller. Over half the goods Amazon ships this Christmas will be for other retailers. It doesn’t carry inventory risk on those sales. It’s handling warehousing, delivery and (in many cases) back-end transaction processing, for a fee.
Its competitors in this case are companies like FedEx (NYSE:FDX). Its competitors in cloud are companies like Microsoft (NASDAQ:MSFT).
All this makes it hard to foresee a break-up of Amazon, something former Walmart US CEO Bill Simon suggested in March. Were such a move to go forward, hundreds of thousands of small merchants would rise to protest because Amazon is the only way they have of competing with the much larger Walmart.
It would be like Oracle (NASDAQ:ORCL) demanding the end of open source clouds.
Despite this, reporters still cover Walmart and Amazon as though the two companies are the same thing. They’re not. Walmart purchases in bulk for its own account and accepts the inventory risk. Amazon increasingly does not.
Walmart Stock Versus Amazon Stock
The question investors ask is whether Walmart can win the war with Amazon? It can’t, because it’s not fighting the same war, at least in the U.S.
It’s a different story internationally, where Walmart has alliances with Rakuten in Japan and JD.Com (NASDAQ:JD) in China, as well as a majority of Flipkart, the Indian ecommerce company. Walmart has also bought Cornerstop, an Amazon-like company covering Mexico and Chile.
Walmart has also been buying top online brands, like ELOQUII, Bare Necessities, and Art.com, while agreeing to sell Britain’s Asda supermarket chain to rival Sainsbury’s.
Walmart has shifted its strategy to be more like Amazon in most international markets, although it still retains direct retailing through Massmart in Africa and under its own name in Latin America.
The point is, however, that Walmart is still a retailer, Amazon a logistics operator. Despite all the rhetoric and sweat being spilled over their “competition,” Walmart and Amazon are still apples and oranges.
Which in the present market isn’t a bad thing for Walmart.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN and MSFT.