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Author: newsreporter Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58841  
Subject: Amazon vs. Wal-Mart Date: 7/14/2013 11:41 AM
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Is Amazon.com The New Wal-Mart?
http://seekingalpha.com/article/1547622-is-amazon-com-the-ne...


The question in this article's title is quite relevant. Very often, the answer is said to be yes and it represents one of the strongest reasons to buy Amazon.com (AMZN) stock. Because who wouldn't want to have bought Wal-Mart (WMT) back when it was of a similar size to Amazon.com today?

Thankfully, we can provide an answer. We can do it because Wal-Mart has an excellent website which includes all its annual reports back to the 70s.

Our first problem is establishing when Wal-Mart was of a similar size to Amazon.com today. If we were to simply compare dollar revenues, we'd be introducing a significant distortion because of inflation. Wal-Mart was doing about as much revenues as Amazon.com is today back in 1994. But remember, selling $1 billion in merchandise in 1994 was not the same as selling $1 billion today.

We thus need to correct Wal-Mart's numbers by a consumer price index just to establish when it really was similar in size to Amazon.com. So starting from Amazon.com's 2012 revenues, $61.1 billion, we need to find the year in which Wal-Mart's revenues were closest to this figure, inflation adjusted.

The closest years end up being 1992 and 1991. In 1992 Wal-Mart did $43.9 billion in revenues. The CPI index was at 140.3 versus 229.594 at 2012 year-end, which means those revenues were similar to doing $71.8 billion in today's dollars. In 1991 Wal-Mart did $32.6 billion in revenues. The CPI Index was 136.2 versus 229.594 at 2012 year-end, which means those revenues were similar to doing $54.9 billion in today's dollars.

Knowing this, I'll use 1992 as the base year to compare Wal-Mart to Amazon.com today. I'll be drawing extensive data from Wal-Mart's 1992 annual report.

...

There are several conclusions to be drawn from this profitability comparison:

- The main conclusion is that Wal-Mart and Amazon.com reside in different worlds. Wal-Mart never had the volatility or the earnings implosions which Amazon.com exhibits;
- Also, Wal-Mart's worse year is better than Amazon.com's best year in this comparison;
- Wal-Mart's earnings were also much cheaper for shareholders (as can be seen from the EPS as a percentage of share price);
- Wal-Mart's was much higher than Amazon.com's. Indeed, Wal-Mart's ROE was more than double the best year Amazon.com ever had (2010);
- Wal-Mart's EPS growth was much better than Amazon.com's. Indeed, Amazon.com's earnings growth in this phase has turned deeply negative to the point where Amazon.com posted losses for 2012. While this is not expected to continue, it shows that Amazon.com is dealing much worse than Wal-Mart with this particular size. And as we've seen before, at this point in history Wal-Mart was growing as fast as Amazon.com, so growth is not an excuse.

...

Looking at Wal-Mart's size, growth, dividends, profitability and investments when it was the same size as Amazon.com today completely debunks the notion that Amazon.com is somehow behaving like the next Wal-Mart. Amazon.com is less profitable, has much higher earnings volatility, does not pay dividends, is not growing faster at this point and did not invest more than Wal-Mart at the same point in history.

Yet Amazon.com trades much more expensively than Wal-Mart ever did, in spite of being inferior to Wal-Mart on every count, even if we compare the year - 2010 - where Amazon.com had its peak profitability.

There is little else to conclude but the obvious. That Amazon.com is a bubble. Yet it's a bubble that keeps on inflating in spite of having issued lowered guidance for 9 quarters in a row and having seen its earnings drop all the way from a $2.53 EPS in 2010 to less than zero in 2012. All the while, expectations for 2012 were north of $5.00 per share in 2010 and Amazon.com posted losses yet the shares went higher.

Indeed, even for the present quarter, expectations were $1.01 two years ago. Today those same expectations stand at $0.06, a 94% drop, and I wouldn't be surprised if the market went and celebrated "a beat" under these unreal conditions.
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