Message Font: Serif | Sans-Serif
 
No. of Recommendations: 73
Amazon's current market capitalization of $761 billion dollars is now equal to the
combined market caps of Wal-Mart, Costco, CVS, Walgreens, TJ Maxx, Target, Best Buy,
and 18 other major retailers included in the table below (data courtesy of Morningstar):

			Mkt	  2017           2017
Company Cap(B) Sales($B) EPS ($B)
------------------------------------------------------
Amazon AMZN 761 177.9 3.0
Wal-Mart WMT 264 485.9 13.6
Costco COST 83 129.0 2.7
CVS Health Corp CVS 70 184.8 6.6
Walgreens Boots WBA 70 118.2 4.1
TJ Maxx TJX 52 33.2 2.3
Target TGT 38 69.5 2.7
Dollar General DG 24 22.0 1.3
Dollar Tree DLTR 22 20.7 0.9
Best Buy BBY 21 39.4 1.2
Kroger KR 21 115.3 2.0
QVC Group QVCA 19 10.4 1.2
AutoZone AZO 18 10.9 1.3
Kohl's KSS 10 18.7 0.6
Burlington BURL 9 5.6 0.2
Advance Auto Parts AAP 9 9.4 0.5
Macy's M 9 25.8 0.6
Wayfair W 8 4.7 -0.2
Ollie's OLLI 4 0.9 0.1
Casey's General CASY 4 7.5 0.2
Dick's Sporting DKS 3.5 7.9 0.3
Etsy ETSY 3.35 0.4 0.1
PriceSmart PSMT 2 3.0 0.1
JC Penney JCP 1 12.6 0.0
Supervalue SVU 0.555 12.5 0.7
Sears Holding SHLD 0.249 22.1 -2.2
-----------------------------------------------------
Total $1,548.2 $43.7
Total - y-o-y growth 4.9% 4.1%
-----------------------------------------------------
Total Excluding Amazon $1,370.4 $40.6
Total - y-o-y growth excl Amazon 2.3% 2.6%


To give you a perspective of how remarkable this "equivalence" is, in 2017 alone this
non-Amazon group of companies generated a combined $40.6 billion of net income on $1.37
trillion in sales through the operation of their 80,799 retail locations
globally and the efforts of their 5.339 million employees.

For comparison purposes, in 2017 Amazon generated (including AWS revenue) $3.03 billion of
net income on $177 billion in sales through the efforts of their 553,000 employees.

All else being equal, investors currently believe that $1 of sales generated by Amazon is
roughly worth 7.5X more than $1 in sales generated by the list of "old" retailers above.

In fairness to Amazon shareholders, from a top-line revenue growth perspective the company
has been performing wonderfully well in recent years - year-over-year sales growth rates of
19.5% in 2014, 20% in 2015, 27% in 2016, and a blistering 31% in 2017.

Furthermore, as the table below shows, Amazon continues to take a larger share of
total addressable retail landscape, at the expense of historically dominant retailers
such as Wal-Mart, Target, Kohl's, Macy's, JC Penney, and others (derived from sales data table):


Mkt
Cap Annual Share of Revenue Total (%)
Company ($B) 2013 2014 2015 2016 2017
----------------------------------------------------------------------
Amazon AMZN 761 5.8% 6.7% 7.6% 9.2% 11.5%
Wal-Mart WMT 264 36.7% 36.0% 34.6% 32.7% 31.4%
Costco COST 83 8.2% 8.5% 8.3% 8.0% 8.3%
CVS Health Corp CVS 70 9.9% 10.5% 10.9% 12.0% 11.9%
Walgreens Boots WBA 70 5.7% 5.8% 7.4% 8.0% 7.6%
TJ Maxx TJX 52 2.0% 2.1% 2.1% 2.1% 2.1%
Target TGT 38 5.7% 5.4% 5.2% 5.0% 4.5%
Dollar General DG 24 1.3% 1.3% 1.3% 1.4% 1.4%
Dollar Tree DLTR 22 0.6% 0.6% 0.6% 1.1% 1.3%
Best Buy BBY 21 3.6% 3.1% 2.9% 2.7% 2.5%
Kroger KR 21 7.6% 7.4% 7.7% 7.4% 7.4%
QVC Group QVCA 19 0.8% 0.8% 0.7% 0.7% 0.7%
AutoZone AZO 18 0.7% 0.7% 0.7% 0.7% 0.7%
Kohl's KSS 10 1.5% 1.4% 1.4% 1.3% 1.2%
Burlington BURL 9 0.3% 0.3% 0.3% 0.3% 0.4%
Advance Auto AAP 9 0.5% 0.7% 0.7% 0.6% 0.6%
Macy's M 9 2.2% 2.1% 2.0% 1.8% 1.7%
Wayfair W 8 0.1% 0.1% 0.2% 0.2% 0.3%
Ollie's OLLI 4 0.0% 0.0% 0.1% 0.1%
Casey's General CASY 4 0.6% 0.6% 0.6% 0.5% 0.5%
Dick's Sporting DKS 3.5 0.5% 0.5% 0.5% 0.5% 0.5%
Etsy ETSY 3.35 0.0% 0.0% 0.0% 0.0% 0.0%
PriceSmart PSMT 2 0.2% 0.2% 0.2% 0.2% 0.2%
JC Penney JCP 1 1.0% 0.9% 0.9% 0.9% 0.8%
Supervalue SVU 0.555 1.3% 1.3% 0.9% 0.9% 0.8%
Sears Holding SHLD 0.249 3.1% 2.7% 2.2% 1.7% 1.4%
----------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%


Now for some fun with basic math:

Let's assume that Amazon will grow it's total net sales (including AWS) by 25% every single
year over the next decade, and will achieve a 3% net profit margin, and Amazon's
shareprice/market cap will increase (a relatively meager) 6% per year over that timeframe -
(keep in mind that starting from $177B in sales, this type of persistent >25% revenue CAGR
over the next decade would be the most remarkable feat in the history of mega-capitalization
companies, but we will assume Bezos can accomplish it)


Using today's valuation as a starting point, if Amazon achieves this unprecedented growth scenario
over the next decade, it will still trade at 27X earnings in 2027, which is double the 150-year
average the S&P500.

For some additional perspective regarding what it would take for Amazon to achieve 25%
annualized sales growth for 10-consecutive years starting at $177 billion in sales:

Every 12 months, Amazon must add approximately the equivalent of of each of the following
company's annualized sales to it's top line revenue, plus duplicate prior year sales from all
existing customers:

2018: Delta Airlines (~$44B)
2019: Aetna (~$55B)
2020: JP Morgan (~$69B)
2021: Costco (~$87B)
2022: Home Depot (~$109B)
2023: 3M (~$136B)
2024: Proctor & Gamble + McDonald's + Cisco (~$170B)
2025: United Healthcare (~$212B)
2026: Apple (~$265B)
2027: Johnson & Johnson (~$331B)

Let that sink in for a second.

Said another way, remember earlier where I said Amazon's market cap was now
equivalent to those 25 combined retailers? Well, based on the math I've outlined above,
Amazon's 2027 sales of ~$1.3 trillion will need to be the equivalent of those 25 companies
current sales combined - you may recall that those companies achieve these current sales
using 89,799 retail locations across the globe and employ over 5 million people.
That means Amazon will capture all of their sales from retail operations, credit services,
memberships, warranty services, walk-in clinics, pharma sales, auto centers, etc.

I find this hypothetical outcome nearly impossible to believe - but by paying 250X current
earnings a company that already has a $750 billion market cap, this is the exact future that
Amazon shareholders are betting on
(whether they know it or not).

Only time will tell if these shareholders are correct.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.