Amazon’s Shares Surge as Walmart’s Falter

March 24, 2018 by Douglas A. McIntyre

Walmart Inc. (NYSE: WMT) shares briefly rallied when it appeared its challenge to Inc.’s (NASDAQ: AMZN) e-commerce business showed some improvement. The excitement has dimmed. Walmart’s shares are down 13% in 2018. Amazon’s are up 26%, even after the recent market sell-off.

Amazon’s earnings showed that it can finally make a reasonable margin on its domestic e-commerce business. Amazon Web Services, the company’s cloud computing operations, dominate the industry. Amazon’s total sales for its fourth quarter rose 38% to $61 billion. Operating income was up 69% to $2.1 billion. North American e-commerce revenue was $37 billion, and operating income was $1.7 billion for the quarter. Founder Jeff Bezos often takes the margin for this part of the company to low levels, sometimes below zero, as he experiments with ways to drive the top line.

Among the focuses on the two companies this year are their grocery businesses. Walmart has been successful in this area for years, and it has been an important aspect of the world’s largest retailer’s domestic sales. Its primary competitor has been Kroger, which is not large enough to eclipse the Walmart effort. Amazon rocked that boat as it bought Whole Foods and upped its grocery delivery business, a direct challenge to Walmart’s success.

Another problem Walmart faces is the growing success of Amazon Prime. Walmart has nothing to match the wildly successful Amazon loyalty program, which is a combination of free shipping, streaming media and special prices on merchandise sold by Amazon. Prime has added special food delivery for customers in several cities. Presumably, the service will roll out across much of the country. Walmart has countered with a similar program.

Walmart also does not have its own string of consumer electronics to draw customers the way that Amazon’s Alexa-powered products do. It is yet another product that builds a relationship between Amazon and its clients. Walmart will never have a way to compete with this.

Whatever optimism Wall Street had about Walmart has ended, at least so far this year. Meanwhile, the optimism about Amazon’s prospects has grown.

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