Difference is walmart is actually making money, amazon isnt. So Walmart can continue what they are doing forever and thats ok, if it were clear that amazon intends to continue what they are doing forever investors would bail and the remaining investors would force amazon leadership out if possible.
As far as when the Amazon endgame starts, my guess is when they are doing as much business as walmart
That difference is partly due to different things being valued: Walmart's valuation is primarily its current business, while Amazon's valuation is primarily its future growth prospects. That future growth is valued in the market cap today, but its actual materialization will only take place in the future, so doesn't show up on the payroll today. If Amazon does actually succeed in growing to Wal-Mart levels of sales, it will end up with a lot more employees than it currently has, though quite possibly still fewer than Wal-Mart.
I think Amazon has one major advantage over Walmart: they don't care about profits and generally run things at break even. This in itself is super powerful, b/c Amazon investors can take their profits by selling the stock (e.g. capital gains) whereas Walmart needs to pay dividends from profits.
A decline in profit will lead to a significant hit in the stock price for Walmart.
The big distinction is that Ponzi schemes have no end-game: they inevitably burst. Amazon has a well defined end-game (start to turn a profit), and there is good reason the believe that they will eventually do so. Assuming this eventuality remains reasonable, the stock will have some inherit value because someone will be willing to buy it today for the expected payout of dividends later.
The valuation doesn't have to do with handling as much cash as WalMart.
The valuation has to do with this idea that Amazon will inevitably kill everything else including WalMart and end up the only way anybody can buy things or do business. It sure as hell hasn't built this valuation on the back of dividends to shareholders. You are taking a ride on a collective fantasy that there can exist a company that kills all other companies and somehow inherits their business without obliterating society as we know it.
Or, possibly, that there can be a cancer so big that it becomes the person and takes over doing everything that they do?
It's definitely a fantasy. Not Amazon's intentions: they're absolutely out to do this wherever possible, and it colors the attitude of Amazonians and dovetails with the political reality of the USA as it currently stands. The fantasy part is that it doesn't end in tears. Eventually Amazon must stop growing, if for no other reason than society will collapse and there will be no more customers for them to service, as there won't be jobs at Amazon to support 'em and government welfare will not be able to give the jobless people enough money to continue to buy things from Amazon.
That's already beginning to happen, but until then—there's a trillion dollar valuation, and the world of capital cries 'play on!'.
Or you could try and convince Amazonians NOT to kill everything else? But I don't think that'll get far: it's their culture and, as I said, that's the only reason for the valuation. People assume Amazon will continue to win.
I don't necessarily think that's the case. Amazon did make more from AWS than their ecommerce business last quarter, but it wasn't a lot more (less than a billion in profit). They will face as much or more competition in this area than in the ecommerce space.
In any case, since a lot (I would say most) of Amazon's market cap is based on perceived value and growth of its distribution and ecommerce business, if the fundamentals aren't there to make larger profits long term, there's no way the stock can maintain its current valuation.
I do shop on Amazon a lot, because I live in a city where the convenience factor is too great to drive to a store, and believe all this in spite of that. I agree that their working conditions are awful, but unfortunately I don't think most people care when shopping. Wal-Mart has taken a lot of flack for that over the years and it hasn't slowed them. In fact it was only about five years ago that there was a best selling book about how Wal-Mart was taking over the world and had to be stopped at all costs. I don't hear that as much these days and in fact it seems that they are viewed as an underdog. Things can change very quickly.
Amazon is mature as well; maybe not as mature, but 20 years is an old company. And Walmart has been making profits for decades, while their revenue has grown dramatically, and while they have been building extremely expensive stores and warehouses and supply chains.
> Why show a profit if you don't have to? Management is obviously finding pretty good, revenue-growing investments.
This is the nonsensical mentality that has blown up Amazon's stock price for more than the past decade. In the short term, absolutely, ramp up revenue and take losses getting there. In the long run, businesses exist to make the shareholders money.
Ok, so let's ask Amazon: they are both profitable and have a business model (further, for years running now, they've been able to demonstrate profitability whenever they feel like it to satisfy Wall Street worries). Their retail business has always had low margins, no different than Walmart by comparison.
A $500bn Amazon would be more valuable than a $500bn Walmart though. Walmart succeeds by being the low-cost leader, which inherently limits their margins. Amazon on the other hand has the capability to generate massive margins due to the network effect in it's marketplace.
Walmart generates $500B in revenue compared to Amazon's $230B. While you aren't wrong that Walmart is doing well, comparing net profit between companies when one is 2x the size of the other is dishonest. It's especially dishonest when guidance from Amazon was a net decrease as they invested into 1 day shipping.
I understand that. But my question is "what's the endgame?" From your response here I assume you feel there will come a point where Amazon will be wildly profitable? When and why?
Your post is inaccurate. WalMart still beats Amazon handsomely in terms of revenue, not to mention, Amazon only recently shifted to profitability, and now their growth is declining.
This notion that Amazon has retail market capture or is close to market capture is completely inaccurate.
Let's not get carried away here. In the most recent quarter, Walmart had revenues of $123B vs Amazon's $38B. Walmart still has time to figure out the ecommerce game.
Sure, but there are many ways to get future cash flows. A significant difference in the valuation of the two companies is that with Wal-mart, the expectation of future cash flows (and therefore present value) comes primarily from its present size, the cash flows that brings, and its expected ability to continue bringing in such flows. Whereas with Amazon, which has much lower current market share and cash flow, the market is "saying that Amazon's growth prospects outweigh it relatively smaller size". Hence the proportion of expected future cash flows that investors expect to come in the form of future growth is significantly higher with Amazon than with Wal-Mart. Therefore you would expect Amazon to have a lower current size and current headcount per unit present valuation, even if there were no differences in productivity.
What I was criticizing was just using the ratio of present market cap and present headcount as a meaningful metric, when comparing companies with very different growth expectations. That effectively becomes a restatement of the different growth expectations: Amazon has the same market cap as Wal-Mart but its present size is smaller in almost any way you could count present size (sales, headcount, etc.).
I will be. Wal-Mart's revenues are $421 billion a year. Amazon.com is $34 billion. They also have fundamentally different core businesses: Amazon's core is easily delivered items which are often difficult to find in stores, Wal-Mart's core is easy-to-find items for which delivery service poses problems.
If Amazon gets bigger than Wal-Mart, it will be because the market in easy deliverables becomes very large but the capabilities of general search companies fail to keep pace. Otherwise, Amazon continues its conversion to a data center and payment processing company.
You're very obviously wrong on Amazon. They have at least 10 to 15 more years of significant growth before peaking. They're still growing near 20%. Their retail business is still eating the competition (total US retail sales are hardly growing). AWS is still growing rapidly and spitting off perpetually greater sums of operating income (that business is nowhere near peak and won't be for a long time). It's very likely Amazon's sales will reach several hundred billion dollars per year over time, just in retail alone. Amazon has a very decent shot of becoming at least 2/3 the size of Walmart in terms of sales.
This points to what I don't understand about the Amazon financial story.
Walmart built up their massive infrastructure business while being simultaneously immensely profitable. However, at Amazon, building out infrastructure comes at the expense of profits.
What am I missing that a lot of smart people are seeing in Amazon?
As far as when the Amazon endgame starts, my guess is when they are doing as much business as walmart
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