AMAZON VS. WALMART

AMAZON VS. WALMART

REAL VISION CASE COMPETITION

Team: Fletcheros

By: Nathan Cohen-Fournier, Adolfo Gatti, Angelica Nouhi

Representing the Fletcher School of Law & Diplomacy, Tufts University

TABLE OF CONTENTS

Abstract

Page 2

Contextual Analysis

Page 3

Amazon Analysis

Page 4

Walmart Analysis

Page 8

Valuations

Page 11

Exhibits

Page 15

End Notes

Page 27

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ABSTRACT

Choosing to invest between Amazon and Walmart seems, at first glance, a straightforward decision. Who wouldn¡¯t invest in the new, exciting player on the block? One is a

promising company built on growth and the vision of a brilliant entrepreneur; the other has

become the largest by revenues and number of employees. One incarnates financial health,

proven track record, and stability; the other, astronomical stock returns accompanied by high

volatility and uncertainty.

We chose the financial strength and consistency of Walmart. We found Walmart¡¯s stock

to be fairly valued. Although financial returns are not expected to be massive, we believe a

steady dividend from a healthy company is the best choice in a turbulent global economy.

Amazon surely has much to offer in promising e-commerce and cloud computing markets.

Nevertheless, many competitors are eyeing these markets, capital requirements are increasing

with sales, and numerous socio-economic risks remain. In fact, we found the stock price of

Amazon to be overvalued by roughly 30%.

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An investment for the next ten years, Amazon versus Walmart: which to choose? We

picked the stability of Walmart over the uncertainty of Amazon. Throughout this paper, we will

expose the rationale for our investment thesis.

CONTEXTUAL ANALYSIS

During the summer of 2015 Amazon leapfrogged Walmart in terms of market value. This

is the story of two giants facing each other on various battlefields; the biggest being the US retail

industry. The retail industry follows macro-economic trends and has been subject to several

changes due to the advent of technology. A key contributor of transformation in the industry has

been e-commerce. In the US, e-commerce accounted for 20% of the growth in the industry,

which totaled $304.9 billion in 20141 (Exhibit 1). A necessary condition for e-commerce is

internet access: according to the World Bank, 40.7% of world¡¯s population in 2014 had internet

access.2

In the US, e-commerce represented 6.4% of the total retail industry during 2014, and is

projected to increase to 8.9% by year-end 2018 (Exhibit 2).3 Amazon is the leader holding 16%

of the market share,4 whereas Walmart has just recently entered the fray. Additionally, mobile

commerce is gaining a stronger imprint, and is estimated to reach $132.69 billion by 2018 or

27% of total e-commerce sales (Exhibit 3).5

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AMAZON ANALYSIS

Since its IPO in 1997, Amazon¡¯s market capitalization has increased by 53,040%,

growing from $441 million in Q2-2007 to $235 billion in Q3-2015.6 While the company has

seduced the masses and become a Wall-Street darling, it only recently started to generate much

anticipated profits.

Amazon is considered by many a technology

stock. Indeed, few companies have spent as much in

CAPEX and R&D as Amazon, which has invested

12% of its total sales since 2000.7 Since 2010, the

firm expanded its square footage at a CAGR of 39%

while

providing

facilities

with

state-of-the-art

machinery, including recently acquired Kiva robots.8

Amazon¡¯s capacity to branch out from its core

Source: Amazon

businesses is exemplified by Amazon Web Services (AWS), the company¡¯s new cloud

computing service, which has grown at a CAGR of 52% since 2010.9

Amazon has been able to translate its technological advantages into tangible benefits for

consumers. According to a study conducted by RBC, Amazon is the leader per convenience,

price, and selection in the e-commerce industry,10 giving it a dominating position and placing it

first on US brand rankings.11 The aura that surrounds Amazon¡¯s success results from the

charisma of its founder, Jeff Bezos. Bezos has been nimble at acquiring talent and pushing

employees to constantly create and develop new solutions, while maintaining the focus on

customers. ¡°Above all else, align with customers. Win when they win. Win only when they

win.¡±12

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