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Walmart Is More of a Threat to Amazon Stock Than You Might Think


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Walmart (NYSE: WMT ) stock keeps hitting new all-time highs. Meanwhile  Amazon.com (NASDAQ: AMZN ) just reclaimed the $2,000 per share level for the first time this year. Amazon stock is only a stone's throw away from breaking its own all-time high at $2,050 per share.

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With both retailers are seeing their shares prices skyrocket, which is the better play for investors? Is Walmart, the king of physical retail, or Amazon, the king of online, doing better? Here's what investors need to know.

Walmart: Ecommerce Suffering Sizable Losses

A recent article in  Recode reported that Walmart's ecommerce division is losing at least $1 billion per year. That's on sales of roughly $21 billion annually, suggesting that Walmart's online sales have at least a negative five percent profit margin.

This makes Amazon, whose retail is marginally profitable, look great by comparison. Several years after Walmart's big  Jet.com acquisition, it still hasn't gotten much closer to making money online.

The  Recode article suggests that some of Walmart's management team is losing patience with the company's online efforts. If so, that could offer a huge boost for Amazon stock. If Walmart pulls back on its online efforts, it will be a massive win for Amazon in its home market.

Amazon: Rivals Making Big Payments Plays

One area of potential weakness for Amazon is with payments. Amazon has the best check-out experience online on its own website, and Amazon Pay has achieved some success.

But it never built something like  eBay (NASDAQ: EBAY ) did with  PayPal (NASDAQ: PYPL ) gathering huge fees and revenue streams from outside its own platform.

Other online retailers, by contrast, have been able to develop huge businesses in this area.  Alibaba's (NYSE: BABA ) Alipay is one big example.

MercadoLibre (NASDAQ: MELI ) has its thriving MercadoPago platform as well. Other independent emerging markets payment companies such as PagSeguro (NASDAQ: PAGS ) have been racking up strong valuations as well.

Meanwhile, Amazon's hold on the best checkout technology is also under attack. Startup  Bolt just raised a bunch of money to expand its checkout platform which allows smaller retailers to compete more effectively with Amazon.

Bolt helps give small websites faster checkouts, fraud protection, and so on, making it easier for firms to compete with Amazon in user experience.

Walmart Score Big in India

And it looks like Walmart scored a big entry into this market as well. That's through its Indian  Flipkart acquisition.

At the time, analysts criticized Walmart for overpaying; Flipkart was supposed to have many obstacles in that market. And while the ecommerce part of Flipkart has arguably underperformed expectations, Walmart got a huge bonus.

Flipkart has a mobile payments division called PhonePe (pronounced as Phone Pay). Though it was just founded in 2015, PhonePe has already taken off .

The Indian government cracked down on cash a couple years ago. It aimed to reduce tax evasion. In doing so, it set the stage for digital payments. PhonePe's business has absolutely exploded since then.

PhonePe is now aiming to raise $1 billion of funding at a $10 billion valuation. At least one analyst thinks the firm is worth 50% more than even that gaudy figure.

Given that Walmart only paid $16 billion for Flipkart, they may have gotten a steal. If the payments arm alone is worth $10 billion+, the core Flipkart retail business was a bargain.

Amazon: Not Winning at Grocery

In theory, Amazon's blockbuster move to buy  Whole Foods  was supposed to shake up food retail forever. So far, Amazon's actual results have fallen far shorter of consumers' expectations.

Some of this is on Amazon for its messaging. Amazon started off with seemingly aggressive price cuts, giving folks the expectations that Whole Foods would be more reasonably priced. Perhaps Whole Foods would finally lose the "Whole Paychecks" nickname.

But it wasn't to be.  Bloombergreported that the price of a constant basket of roughly $400 of food at Whole Foods has dropped by only $10 - or a mere 3 percent - since Amazon took over.

This figure is based on analysis from Gordon Haskett Research Associates. That firm has priced out the same group of goods at one New Jersey Whole Foods location nine times over the past two years.

It has found that Whole Foods did cut prices heavily in one area: produce. The cost of Whole Foods' produce has fallen more than 15% since 2017. Dairy has also dropped a few percent. But frozen goods, dry goods, and beverages have all been about flat.

Meanwhile, the price of bakery items and of snack foods have gone up significantly since Amazon took over. On net, the average consumer has saved hardly anything unless they only shop at Whole Foods for produce.

This could be a major problem for Amazon stock going forward as it faces off with its biggest rival in grocery: Walmart. Say what you will about Walmart's e-commerce efforts, they are the best of the national retail chains at logistics, hands down.

That's how Walmart has maintained such low prices over the decades, and it's how Walmart is able to compete with Amazon on one and two-day shipping now.

If Amazon can't figure out how to lower grocery prices and still make money, Walmart will eat its lunch in this all-important sector of the retail economy.

Amazon Stock Verdict

Amazon stock and WMT stock are rising for different reasons. Amazon Web Services continues to perform phenomenally. As a result, investors are delighted to own Amazon stock.

With all the SaaS and cloud stocks soaring, it makes sense that Amazon is powering to new highs.

But in its core retail business, Amazon is showing some vulnerability. It's really underwhelmed with its Whole Foods rollout in particular.

If Walmart is willing to keep taking losses in ecommerce for the time being, it may gain further ground on Amazon as the physical and ecommerce channels continue to integrate.

If Amazon can't do better in grocery, Walmart has a huge opportunity to reclaim market share online.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.

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The post Walmart Is More of a Threat to Amazon Stock Than You Might Think appeared first on InvestorPlace .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing
Referenced Symbols: AMZN , WMT , BABA , PYPL , EBAY



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