Amazon is now bigger than Wal-Mart (based in the USA and the owner of Asda in the UK) as the world’s largest retailer based on market capitalization. Walmart was the leading retail corporation until recently, previously raking in $444 billion (2012), and forming 3% of the US economy. Amazon was more than 15 times smaller than Walmart at this point, but with Amazon’s innovation and rapid development, online retail became a preferred retail technique over Walmart’s predominant brick-and-mortar system.
The revenue gap is closing at 1:5 (Amazon: Walmart) and Amazon’s revenue per employee ($623,000) is nearly three times that of Walmart. This is because, in reality, Amazon is made up of two businesses. One, the well-known online retail store; while its rapidly growing cloud business called Amazon Web Services (AWS) is making the bulk of recent profits. AWS’s revenues surged 70% year over year to $5.5 billion for the nine-month period ended Sept. 30, 2015. AWS operating margins were 21.5% over that period, compared with 2.4% for Amazon’s retail business.
More importantly, Amazon’s market capitalisation recently surpassed that of Walmart’s. Amazon is currently valued at $244 billion to its rival’s $206 billion. This is further evidence of Amazon’s unstoppable rise versus the slow decline of Walmart because of the store/physical retail model it uses.
Amazon is an innovative, young, developing corporation while Walmart is slowly sinking due to the billions of premiums they owe their investors (who would otherwise sell their shares). Amazon’s commodities are of superior quality, the current market trend being quality over price, and Walmart is seen as a discount not worth the poor quality.
However, despite their second position, Walmart is developing methods to improve their position in the economy. They have opened ‘Neighbourhood Markets’ to better mesh with clients, further combining online and offline retail. However, considering the expeditious aggrandisement of Amazon, Walmart is at a disadvantage regarding matching up and rising again as the kingpin.
On the other hand, Amazon is scaling into novel fields, resulting in a wider spread over the market despite the plateau of Amazon’s online retail. Their investments in the cloud and video markets seem aimed at creating new markets that will be growing a few years from now. The retail aspect of the business is engaged in shelling out dividends (just like with Walmart), while the majority enterprise is innovating. The two are polar ends of an upwards inclining slope, cloud tech being at the gradient’s summit.
However, investing in Amazon has long been an act of faith. Over the past decade, Amazon’s annual sales have grown more than tenfold to nearly $90 billion in 2014, while earnings have been measly and sporadic. Nevertheless, investors have remained resolute in their belief of significant profits just around the corner.
Cloud computing is going to continue to bring in assets for Amazon. By April end of 2017, Amazon hit $3.66 billion. However, as mentioned earlier, any corporation could fall, and thus, Amazon continuously reinvents its business by bankrolling novel enterprises and economising products to stay at the top of the game with consumer dominance. They are injecting funds into retail to make it more promising with almost instant product consignment with trucks, and perhaps one day, drones. Amazon’s online retail is dominating global purchasing sales.
Potential hazards are the accuracy of the valuation. With forward earnings multiplying by 155 times and an estimate of 45 times over free cash flow, Amazon is on top of the leaderboard in cloud computing, while Microsoft and Alphabet are stronger in operating systems and search engines respectively.
Amazon is a class apart, which means it faces numerous challenges that must be overcome to stay in place. To maintain its position, Amazon needs to expand its reach into novel sectors: Amazon Fresh (groceries), clothing, etc. With a consistent 20% annual revenue increase, Amazon is on the path towards success.