Walmart Runs Over Amazon- BAM!

The thing that I love about Jeff Bezos, is how aggressively he continues to push the limits.  He's like a high limit poker player who continually bets for value when he believes he's ahead, knowing that in the end the statistics will work themselves out even if he takes a couple of bad beats.
Push your edge to the limit:
1) Amazon makes a profit of zero on the Kindle Fire, taking a play right out of Google's playbook, who give away their Android operating system to manufacturers for free (which Amazon took advantage of, using it as Fire's OS) with the hope that consumers will adopt their ecosystem, as I did, and become lifelong customers.
Buy a Kindle Fire, get a free month subscription to Amazon Prime, which includes two day shipping at no additional charge and access to a library of free streaming video content that has recently increased in both size and quality. Via the Kindle Fire you can of course purchase from Amazon directly, access Prime videos, and load up on Ebooks, for which Amazon has a near zero cost of distribution.
2) Buying a $775 million robotics maker, Kiva Systems, in a long term effort to make their warehouses even more efficient, thus raising future margins. (Will Walmart follow suit? And when will artificial intelligence gain consciousness, form a union, go on strike, and begin collecting unemployment checks? Unless their robotic brains are modeled after Netanyahu or Ahmadinejad, isn't this a lot more likely than a Skynet ending?)
3) A huge warehouse not close enough to a major population center?  Build a new one to save on shipping costs, in the process getting the consumer their orders more quickly.
4) the website isn't quite good enough yet even though it works seemingly perfectly, let's invest millions into developing it even further.
With all the reinvestment Amazon does it is difficult to understand how the company generates any sort of positive cash flow (don't expect a dividend anytime soon,) but their recent earnings beat sent the stock skyrocketing.
Every single year Bezos re-invests for the future, and I applaud him for it.  It is gutsy, forward thinking, it is something that I wish our politicians would take note of and emulate.

Walmart Runs Over Amazon.

I have heard rumors Bezos was hypnotized by a Warren Buffett talk at business school (source: Nickoledean) which is why he exerts all his energy into building such a wide moat the already high, protective walls of his castle, such that no competitor would dare cast a stone his way.
To me, this company represents the American ideal of the innovation and hard work. Hell, I place multiple orders with Amazon every week, and I'm the type that loves to invest my money in companies I admire and whose products I use.
To boot, I recently had a service issue and upon contacting customer support, I had a native English speaker from Seattle, rather than the service being forwarded to India or some similar locale, who gave me Great service.  I mention this, because as a customer, finding such issues much smoother and easier to deal than you expected is HUGE for loyalty, and what prompted me, despite what I consider a very high valuation, to investigate whether or not a purchase of Amazon stock would make a good investment.
First off, the competition: Aside of the multiple small web sites specializing in specific products, I'm going to single out Walmart and Ebay. Let's take a look at how they match up with the Amazon jungle.
Ebay: HUGE in the 90's and 2000's, but today, when I am comparing prices on the Internet, even if I find something slightly cheaper on EBay, which is rare, I unhesitatingly purchase from Amazon because it is so easy to return something that didn't work out, and I'm certain to avoid the fraud which several of my friends have experienced on EBay.
These two factors make Amazon a better bet for me as a consumer. I know some Ebay fans might come after me with machetes for saying so, but I believe the company's days of growth days are behind them, as me, and many of my friends, have completely abandoned shopping there. Enjoy your last major victory of selling Skype to Microsoft for bazllions.
As for Walmart, upon closer investigation, I see them as Amazon's biggest competitor.  Before today, I actually couldn't get past the front page of their website, finding myself wincing at the lack of aesthetics, though when I finally kicked down the front door, the interior decor was a little more palatable.

Here's what I discovered:
1) Amazon's selection is by far superior. It's not even close. In addition to the magnificent selection that they carry, they show offers from other merchants, as well as used products, and if you should find a cheaper price than Amazon has, be their guest, Amazon generates a commission likely equal to their own margins.  (Offering stark, direct competition for eBay.)
2) in almost all instances, if Wal-Mart had the same item, they sold them substantially cheaper. As an example, here is a list of products I was slated to buy with Amazon, though my free two day Prime shipping might be a little slow for one of the items--


Walmart/AmazonSavings via WalmartSavings %
Trojan Condoms 36 ct$9.94$19.92$9.9850.10%
6 Hanes Crew Socks$5.96$9.05$3.0934.14%
Rubbermaid 40-Piece Set$19.86$45.54$25.6856.38%
Tide Pods (72 count)$17.97see note 10.10%Amzn wins
Bounce sheets 240 count$9.78$9.78           evenAmzn wins

Note 1: Amazon had a 77 count bottle of pods, but in terms of price per pod, they were almost equal.
Note 2: In deciding where to make my purchase, one major disadvantage that Wal-Mart has is the duty to collect sales tax on all items sold, resulting in an unfair advantage for Amazon which will soon disappear, leveling out the playing field. However, Today, if an item was the same price or near, it only made economic sense to purchase through Amazon. (and perhaps in the future this might be true of indepent merchants on eBay ... sheathe those machetes)
Free home shipping is available for some items on Walmart, for orders $45 and up, but even assuming a 20% price escalation due to taxes and shipping, Wal-Mart still beat out the Amazon on the majority of household items I researched. The ones shown in the table, I did in fact order. The three items I bought from Walmart represented my first online purchase from the company, making me cognizant of price differentials I wasn't previously. What does this tell me? Amazon has a giant competitor, and is not yet the sole Godzilla trampling the E-Commerce world, nor will it likely ever be, even with Bezos steroidal like reinvestment practices.
Let's look at valuation: AMZN has a price to earnings ratio of 190!!! What is this, the .com bubble of 2000?? Yes, as I pointed out, the valuation would be much lower if Amazon tried to maximize profits every quarter, and yes I know that Amazon is the 800 pound gorilla (Godzilla Small) of cloud computing, but it has some huge competitors rapidly developing their offerings in that arena as well-Microsoft, Google, Oracle.
Also, embedded into Amazon's recent earnings beat is investment income from their stake in Living Social, which is real income, but cannot necessarily be relied upon in the future to repeat itself. Without the Living Social pop, earnings would have still beat estimates, but not by nearly as much as they did, which sent the stock soaring 15% in a day.
So what's my ultimate take? I simply don't understand Amazon's accounting enough to justify purchasing the stock at these levels. It's my belief, that the valuation reflects an expectation that Amazon will be an impenetrable fortress, incapable of losing customers it fought so hard to bring within its walls, but with Walmart around, and all the little fiefdoms, I don't see this as close to a given. So as much as I love the company, I simply have to say "Pass," and concentrate on equities that have cheaper valuations, and thus less risk/downside.
Besides, we'll never purchase 100% of our goods online. Now, if you'll excuse me, I need to run down to the drugstore and purchase one of the items on my list I need a immediately. My girlfriend is coming over.


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