24/7 Wall St. Insights
- Walmart Inc. (NYSE: WMT) stock is outperforming Amazon.com Inc. (NASDAQ: AMZN) stock this year.
- Also: 2 Dividend Legends to Hold Forever
So far this year, the impossible has happened. The leader in e-commerce retail, which is supposed to have displaced the bricks-and-mortar part of the industry, isn’t doing so, at least by stock market measures. Walmart Inc. (NYSE: WMT), the largest brick-and-mortar retailer by far, has a stock that is up 32% this year, while Amazon.com Inc. (NASDAQ: AMZN) is up only 14%.
Walmart has proven that skeptics are wrong. Its 4,600 U.S. stores have continued to produce tens of billions of dollars in revenue while maintaining strong margins. It has also entered the e-commerce market very successfully. Walmart is the only brick-and-mortar retailer that has done nearly as well, including direct rivals Target and Costco. Target is in trouble.
In the most recently reported quarter, Walmart’s U.S. sales rose nearly 5% to $109 billion, and operating income was up 7% to $5.3 billion. Management commented, “Global eCommerce sales grew 21%, led by store-fulfilled pickup & delivery and marketplace.” That means Walmart successfully sells things online and gets people to pick them up at stores, saving shipping costs.
Walmart also benefits from low investor expectations. Amazon’s share price is tightly tied to its AWS cloud business and a move into AI. Cloud computing is highly competitive. The billions of dollars big tech companies have put into AI and will do so in the future have an uncertain payoff. A recent market sell-off in AI-related stocks shows investor anxiety about potential profits, at least in the short term.
Walmart is doing well because its revenue and profits are high in a simple business with modest risk. Amazon’s AI and cloud businesses are not nearly as simple and are riskier.
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