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Amazon in 2011 is where Walmart was in 1991

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Ever since he took over coverage of Internet stocks from Mary Meeker, Scott Devitt of Morgan Stanley has emerged as one of my favorite Wall Street analysts – not because I obsess about his ratings and price targets. Instead it is just that he often has some really great nuggets buried in his reports that make them worth scanning through. Take today for example. In his research note on (s AMZN) he pointed out that Amazon today is where Walmart (s WMT) was twenty years ago.

In 1991, Walmart reported revenue of ~$44B, an increase of 35% over the prior year. In 2011, we estimate will report revenue of $49B, an increase of 43% over the prior year. is the Walmart of our era but it’s better, in our view – is the combination of a technology + logistics company, allowing it to participate in a transition of physical to digital retail supported by a store-less (in Seattle) business model that leads to higher long-term economic returns. (Morgan Stanley Research)

You can’t get more succinct than that. One can quibble about its price-to-earnings ratio or an 8 percent decline in earnings during the most recent quarter, the fact remains that Amazon is fast becoming a part of our livesThe company reported sales of $9.9 billion and net income of $191 million for the second quarter of 2011.

Of course there is one more thing Amazon and WalMart share in common – their vendors love to hate them. Or hate to love them. Or both.

Also, we are spending more with Amazon, as pointed out by Ben Schachter of Macquarie Securities.

23 Responses to “Amazon in 2011 is where Walmart was in 1991”

  1. It’s entirely irresponsible for Devitt to be pumping AMZN at these levels. To compare AMZN in 2011 to WMT in 1991 is completely one-sided: he’s looking only at revenue growth. WMT’s profit in 1991 was almost double what AMZN’s will be this year but what makes the comparison so absurd is the implication that AMZN’s stock will track the 500%+ performance of WMT’s post-1991. In 1991 WMT was not trading at 105x earnings. So basically if you are going to be responsible to the investing public Devitt tell the whole story: AMZN’s stock price has already priced in that it needs to grow earnings 5-7x for it’s multiple to catch up to WMT’s.

  2. There are some big differences between Wal-Mart of the ’90s and Amazon today though. To begin with, Wal-Mart pulled in $1.6 billion in profits that year, Amazon is on pace for $1 billion in profit this year. For the same reason that Amazon ramped so much faster, ie building a website as opposed to physical stores, competition online is also much fiercer, with tons of other online stores. It’s all about innovation online and while Amazon has rolled out many nice features over the years- in fact, I consider Amazon the most innovative large for customer-facing features- I doubt they’ll be able to keep up as the pace of change revs up. They’ve certainly built a nice business, but those razor-thin margins combined with constant change in the tech market don’t bode well for them.

  3. The irony with Amazon is that while their revenue is skyrocketing, their margins have remained consistently 22 – 24% (gross) and 2 – 4% (net).

    Amazon is investing heavily in working capital, with inventory turns now ~40 days and A/R turnover up to 13 days, and CapEx increasing to support sales channels, with fixed asset turnover now 11.6x, down from 22 – 25x.

    The issue is, if you look at their ROIC, in Q2, Amazon hit 34%, which is dramatically down 70%’s+ Amazon was hitting ’07 – ’09.

    I really want to see Amazon succeed, but the cost of this growth is curious. Especially considering that states are starting to reconsider the online sales tax, future growth may be at risk.

  4. There are no bounds to Amazon’s growth, except legislation. Walmart can get more Amazon like, but needs to change product assortment–Walmart sells mostly crappy stuff with focus on cheap, whereas Amazon sells what people want to buy, available elsewhere but cheaper. The free shipping over $25 and no tax are incentives and ultimate price levelers, and good customer service and refunds sustains that, making Amazon a competitive if not the preferred offering. The tax issue is a major competitive advantage that a B&M cannot match. If sales taxes were to apply to Amazon, it would be game changing, and if I were Walmart, I would go after that with vast lobbying power–and sue for anti-competitive practice. But even if sales tax were imposed, Walmart would still be at a disadvantage because Amazon simply is much better on all counts–go to a Walmart and see the poor customer service attitudes of the employees, long lines, etc. All the efforts and promo dollars spent by Walmart are a waste, when their poorly paid employees present their nasty attitudes to the customer. A more apples-to-apples case in point (although not Amazon), just compare Costco with Sam’s Club–same type of premise and offering and physical delivery and all. But for locational constraint, why would anyone prefer Sam’s Club to Costco? The difference is customer service and employee attitudes. At Costco, customer feel valued, at Sam’s Club, customers are treated as a neccessary evil.

  5. Thomas

    Amazon will never achieve the margins that analysts are using in their projections. The sole exception was haydays of Kindle (Profit margin on their product was higher than any retail operation). As a pure retailer it will never achieve its current valuation. Add sales tax to major purchase and the fact that it takes such a long time for many non hot items to ship, will kill the experience of getting thins delivered to the door.

  6. It’s helpful, imo, to also look at the ramp of Wal-Mart stores in relation to its revenue growth. Whereas Amazon today is available to everyone (just about everyone now has net access at home), it took Wal-Mart awhile to get significant coverage of the U.S. population. In short, the comparison clock should be sync more with the availability of the retail experience to the end consumer.

  7. So, I guess, it was not important to note within the text (although the first chart shows it) that it took Amazon 17 years to reach the same level that took Walmart 29 years?

      • True, but there is one more reason (I am sure, in a sea of multiple reasons for their success):
        What Amazon took from the good US brick-and-mortar shops and applied it to their virtual shop is the stellar customer support.
        And then, they rolled out the same policy globally. However big Amazon is, it still benefits and relies on the word of mouth advertisement.