Walmart (NYSE:WMT) increasingly looks like Amazon (NASDAQ:AMZN), just with big stores instead of clouds. This strategy pleases investors, who have sent shares up 27.5% during 2019 — close to the 19.4% gain of Amazon. WMT shares opened at $117.16 Sept. 13. Over the last two years Walmart’s market cap is up almost $80 billion to just under $334 billion.
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But Walmart has accomplished this without a lot of organic growth. The company’s current 12-month sales rate of $518 billion is still just 7% ahead of 2016’s sales of $482 billion. The last 12 month’s net income is $2 billion lower than it was in 2016.
Meanwhile Kroger (NYSE:KR), whose sales are up 10% in that time and whose net income is up 75% from 2016 (with a bigger dividend yield), has gone sideways for two years.
How Walmart Is Becoming Amazon
Walmart’s high valuation is based on moves that look increasingly like those of Amazon.
Walmart is matching Amazon’s $120 per year Prime delivery service with a $89 per year “Delivery Unlimited” offering. It will service half the country by the end of the year. Walmart is charging $12.95 for those who buy the month-to-month plan. Amazon doesn’t yet offer a monthly version of Prime.
Amazon Prime includes a streaming video service. Walmart has its own video service, called Vudu. It will now cut out objectionable content — sex, violence and substance abuse — automatically when you watch with the family.
Amazon is working on a healthcare offering — alongside Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) and JPMorgan (NYSE:JPM) — dubbed “Haven.” Walmart is launching a 10,000 square foot health clinic that will even offer mental health services.
Amazon’s rise started with its Marketplace. It now sells more merchandise as a third party than directly. Walmart now has the Walmart Marketplace, offering many of the same features. Many online merchants use both marketplaces.
How Walmart Is Not Amazon
Walmart’s efforts to Amazon-ify itself began in 2016, when it spent $3.3 billion for Jet.Com. Jet founder Marc Lore now runs Walmart’s online efforts. He admits to mistakes, such as buying brands like Bonobos instead of launching store brands like Allswell Mattress (a Bonobos brand).
Lore’s team has been great for Walmart stock, even though the group continues to lose $1 billion per year. Copycat moves like the Walmart Marketplace also mean it takes on Amazon-like risks. Lore admits that if investigators now probing Amazon looked at his operation, they would probably “find stuff.”
The biggest risk in Amazon stock, meanwhile, continues to be investigations that could break it up as a monopoly. Here, too, Walmart may be a copycat. Its share of the grocery market in some cities ranges from 50%-70%. So why isn’t Walmart being investigated the way Amazon is?
Walmart’s physical power also makes it subject to all society’s risks. A mass shooting at an El Paso, Texas Walmart caused the company to stop selling some types of ammunition and all handguns. When it asked gun rights activists to stop parading around its stores with their assault rifles, however, Walmart was ignored. In some states, there’s nothing Walmart can do.
The Bottom Line on Walmart Stock
Looking back at what I’ve written about Walmart recently, I may appear to be a Walmart-basher.
Just this year I have downplayed Walmart’s threat to Amazon and called its obsession with Amazon a mistake. I’ve warned that it will be first to feel a recession and even compared Walmart stock to a hamburger priced like steak.
But Walmart is a very good hamburger. The Amazon obsession has boosted WMT stock, while shares of competitors like Kroger remain moribund. What do I know?
Walmart is a good company — maybe their new moves in healthcare and video streaming will put an end to my Walmart stock bashing.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in KR and AMZN.
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