Amazon.com vs. Walmart: Which is the Better E-Commerce Giant to Own for the Upcoming Holiday Season?

Amazon.com, Inc. (AMZN) and Walmart Inc. (WMT) are two e-commerce giants globally. AMZN retails consumer products and subscriptions and operates Amazon Web Services (AWS), one of the biggest platforms in the digital computing space. It offers personalized shopping services, web-based credit card payment, and direct shipping to customers. In comparison, WMT operates retail, wholesale, supermarkets, other units, and e-commerce websites worldwide. In addition, the company offers fuel and financial services and related products.

Changing consumer trends amid the COVID-19 pandemic propelled the e-commerce segment to become the retail industry’s backbone, generating more than $4.28 trillion in sales in 2020. Worldwide retail e-commerce sales are projected to reach $4.89 trillion this year. In concert with the ongoing digitalization transformation, as business-to-business (B2B), business-to-consumer (B2C), consumer-to-consumer (C2C) e-commerce have started to gain momentum this year, the e-commerce market is expected to grow substantially in the future. The global e-commerce market is expected to grow at a 29% CAGR to $10.87 trillion by 2025. Retail sales rose 0.9% in August and 0.7% in September. And the  National Retail Federation expects holiday sales to grow  8.5% - 10.5% during November and December. So, both AMZN and WMT should benefit.

While AMZN has gained 5% in price over the past six months, WMT has surged 7.5%. WMT is a clear winner with 11.5% gains versus AMZN’s 9% returns in terms of the past month’s performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On October 28, 2021, AMZN’s Amazon Web Services, Inc. (AWS) announced the general availability of Babelfish for Amazon Aurora PostgreSQL-Compatible Edition. This new capability allows customers to run applications written for Microsoft SQL Server directly on Amazon Aurora with little to no code changes. With Babelfish for Aurora PostgreSQL, customers migrate their data and configure their application to point to Amazon Aurora, reducing costs and simplifying operations by removing the dependency on Microsoft SQL Server. AMZN expects to witness rising demand from organizations in the coming months.

Following the U.S. Food and Drug Administration (FDA) and Centers for Disease Control and Prevention’s (CDC) authorization of Pfizer-BioNTech’s COVID-19 vaccine for children aged 5-11, on November 3, 2021, WMT and its Sam’s Club subsidiary announced they would administer the vaccine in more than 5,100 pharmacies nationwide. Offering the best services to help minors’ parents regarding the safety and procedures of taking the vaccine, WMT expects  to generate good sales in the upcoming months.

Recent Financial Results

AMZN’s total net sales for its fiscal third quarter, ended September 30, 2021, increased 15.3% year-over-year to $110.81 billion. However, the company’s operating income came in at $4.85 billion, down 21.6% from the prior-year period. While its net income decreased 50.2% year-over-year to $3.16 billion, its EPS decreased 50.5% to $6.12. As of September 30, 2021, the company had $29.94 billion in cash and cash equivalents.

For its fiscal second quarter, ended July 31, 2021, WMT’s total revenues increased 2.4% year-over-year to $141.05 billion. The company’s adjusted operating income was  $7.35 billion, up 12.9% from the prior-year period. WMT’s net income was  $4.28 billion, indicating a 34% decline from the year-ago period. Its EPS decreased 33% year-over-year to $1.52. The company had $22.83 billion in cash and cash equivalents as of July 31, 2021.

Past and Expected Financial Performance

AMZN’s revenue and net income have grown at CAGRs of 27.5% and 43.4%, respectively, over the past three years. The company’s EPS has grown at a 42% CAGR  over the past three years.

Analysts expect AMZN’s EPS to decline  2.3% year-over-year in the current year and increase 20% next year, and its revenue to increase 21.8% year-over-year in the current year and 17.8% next year. The company’s EPS is expected to grow at a 36% rate per annum over the next five years.

In comparison, WMT’s revenue and net income have increased at CAGRs of 3.5% and 24.6%, respectively, over the past three years. The company’s EPS has increased at a 26.7% CAGR over the past three years.

WMT’s EPS is expected to rise 15.1% year-over-year in the current year and 4.6% next year. Its revenue is expected to rise marginally in the current year and 2.7% next year. The stock’s EPS is expected to grow at an 8% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward PEG, AMZN is currently trading at 3.19x, which is 9.2% higher than WMT’s 2.92x. In terms of forward EV/Sales, WMT’s 0.83x compares with AMZN’s 3.76x.

Profitability

WMT’s trailing-12-month revenue is almost 1.2 times higher than AMZN’s. WMT is also more profitable with a 2.3% levered free cash flow margin versus AMZN’s 2%.

Also, WMT’s ROA and ROTC of 7.8% and 12.3%, respectively, compare with AMZN’s 5.3% and 8.2%.

POWR Ratings

While WMT has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, AMZN has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

WMT has an A grade for Stability, which is consistent with its lower volatility than the broader market. It has a 0.51 beta. AMZN’s C grade for Stability is in sync with its slightly higher volatility than the broader market. AMZN has a 1.11 beta.

WMT has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. WMT has a 0.83x forward EV/Sales, which is 59% lower than the 2.02x industry average. And AMZN’s D grade for Value reflects its overvaluation. The company’s 3.76x forward EV/Sales is 151.8% higher than the 1.49x industry average.

Of the 78 stocks in the F-rated Internet industry, AMZN is ranked #44. In contrast, WMT is ranked #11 of 41 stocks in the A-rated Grocery/Big Box Retailers industry.

Beyond what we’ve stated above, our POWR Ratings system has also rated WMT and AMZN for Growth, Momentum, Quality, and Sentiment. Get all AMZN ratings here. Also, click here to see the additional POWR Ratings for WMT.

The Winner

An upbeat job market and healthy consumer spending should help the e-commerce industry generate significant revenues during this holiday season. As  giants in the e-commerce space, both AMZN and WMT benefit from the industry tailwinds. However, we think its relatively lower valuation and higher profitability make WMT a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Internet industry, and here for those in the Grocery/Big Box Retailers industry.

AMZN shares were trading at $3,544.30 per share on Friday afternoon, up $67.30 (+1.94%). Year-to-date, AMZN has gained 8.82%, versus a 26.46% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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