{"id":35916,"date":"2013-02-04T10:24:41","date_gmt":"2013-02-04T15:24:41","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=35916"},"modified":"2013-02-04T10:24:41","modified_gmt":"2013-02-04T15:24:41","slug":"wal-mart-or-the-wal-mart-of-the-web","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/04\/wal-mart-or-the-wal-mart-of-the-web\/","title":{"rendered":"Wal-Mart \u2026 or \u201cThe Wal-Mart of the Web\u201d?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Though it has been derisively been called \u201cthe river of no returns,\u201d Amazon.com (Nasdaq:$<\/span>AMZN<\/a>)<\/b> can call \u201cscoreboard\u201d on its critics.\u00a0 Amazon is the last man standing of the generation of companies that rose to prominence during the 1990s tech boom.<\/p>\n

Sure, plenty of the dot-com darlings are still alive and well and generating more revenue than at any time in their histories.\u00a0 Microsoft (Nasdaq:$<\/span>MSFT<\/a>)<\/b> and Cisco (Nasdaq:$<\/span>CSCO<\/a>)<\/b> quickly come to mind.\u00a0 But most have had reputational hiccups in the 13 years that have passed since the Nasdaq\u2019s peak, and Amazon is the only one to see its stock surpass its old 2000 highs.<\/p>\n

Note: Apple (Nasdaq:$<\/span>AAPL<\/a>)<\/b> and Google (Nasdaq:$<\/span>GOOG<\/a>)<\/b> don\u2019t count; Apple was an also-ran in the 1990s that reinvented itself in the mid-2000s and Google was not publically traded at the time.\u00a0 \u00a0<\/i><\/p>\n

\"AMZN\"<\/a><\/p>\n

Thirteen years after dot com went dot bomb, Qualcom(Nasdaq:$<\/span>QCOM<\/a>)<\/b> is close to break even.\u00a0 But Microsoft, Cisco and Intel (Nasdaq:$<\/span>INTC<\/a>)<\/b> all trade for less than half their old highs and all trade at very modest multiples of earning\u20149-13 times expected earnings for the coming year.<\/p>\n

Yet Amazon is up 300% and trades for a very dot-com-like 72 times expected earnings.\u00a0 And this for a company with the skimpiest returns of the whole lot.\u00a0\u00a0 Mass-market retailing tends to be a low-margin business, but Amazon\u2019s are razor thin even by retailer standards\u2026as in barely existent at all.\u00a0 This past quarter Amazon earned 22 cents per share\u2026for a stock worth $265 per share at time of writing.\u00a0 For the full year 2012, Amazon actually lost money.<\/p>\n

What gives?<\/p>\n

Investors are willing to give Amazon a free pass on low profitability because the company is growing its top-line sales by more than 20% per year and they see it as being the Wal-Mart (NYSE:$<\/span>WMT<\/a>)<\/b> of the web.\u00a0 And, so the thinking goes, once the company has achieved its scale objectives, it can stop investing so heavily in new infrastructure.\u00a0 The savings will flow through to the bottom line, and investors will finally get the rewards they\u2019ve been waiting for.<\/p>\n

Maybe.\u00a0 But let\u2019s see how the \u201cWal-Mart of the web\u201d compares to the original Wal-Mart.<\/p>\n

 <\/p>\n\n\n\n\n\n
<\/td>\n\n

Market Cap<\/p>\n<\/td>\n

\n

P\/E Ratio<\/p>\n<\/td>\n

\n

P\/S Ratio<\/p>\n<\/td>\n

\n

ROA<\/p>\n<\/td>\n

\n

ROE<\/p>\n<\/td>\n

\n

Gross Margin<\/p>\n<\/td>\n<\/tr>\n

Wal-Mart<\/td>\n\n

$236 Billion<\/p>\n<\/td>\n

\n

13.1<\/p>\n<\/td>\n

\n

0.5<\/p>\n<\/td>\n

\n

8.6%<\/p>\n<\/td>\n

\n

23.0%<\/p>\n<\/td>\n

\n

24.0%<\/p>\n<\/td>\n<\/tr>\n

Amazon.com<\/td>\n\n

$129 Billion<\/p>\n<\/td>\n

\n

72.8<\/p>\n<\/td>\n

\n

2.0<\/p>\n<\/td>\n

\n

1.5%<\/p>\n<\/td>\n

\n

-0.5%<\/p>\n<\/td>\n

\n

25.0%<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Looking at the numbers, it\u2019s hard to make a compelling case for Amazon.\u00a0 It\u2019s four times as expensive as Wal-Mart measured by price\/sales and nearly six times as expensive based on forward price\/earnings.\u00a0 And again, this is Wal-Mart\u2014the largest and most successful retailer in the world.<\/p>\n

\u00a0To be fair, Amazon has certain assets that Wal-Mart does not have and likely never will.\u00a0 Wal-Mart has nothing that can compare with the Kindle, for example.<\/p>\n

Sure, Wal-Mart sells e-readers, and until recently the behemoth of Bentonville sold Amazon\u2019s Kindle.\u00a0 But that\u2019s not the point.\u00a0 As an inventory item in its own right, the Kindle isn\u2019t worth much.\u00a0 Amazon is willing to virtually give it because it knows the real goldmine is in selling the e-books.\u00a0 The Kindle itself is little more than a facilitator, and Wal-Mart has no answer to Amazon\u2019s e-book downloading service\u2014which grew by 70% last year.<\/p>\n

In the same light, Wal-Mart likewise has nothing to rival Apple\u2019s iTunes; it discontinued its music downloading service in 2011.<\/p>\n

Still, Wal-Mart has gone head-to-head with Apple, Amazon, and Netflix (Nasdaq:$<\/span>NFLX<\/a>)<\/b> with its Vudu high-definition video streaming service, which has one of the largest movie and TV catalogues available.<\/p>\n

Wal-Mart may or may not beat Amazon in the video streaming contest.\u00a0 But if I were an Amazon shareholder, I would have much bigger concerns\u2014such as Wal-Mart\u2019s expanded presence online at walmart.com, Wal-Mart\u2019s enormous logistical infrastructure and its ability to offer free shipping to any of its stores, and\u2014perhaps scariest of all\u2014the move by states to tax internet commerce.<\/p>\n

Remember, in high-sales-tax states like California and Texas, online retailers had an enormous advantage over their brick-and-mortar rivals.\u00a0 Their prices were 8% lower from the get go due to the lack of sales tax levied.\u00a0 Alas, those days are over.\u00a0 States have become more stringent in their definitions of what qualifies as having a physical presence on their turf.\u00a0 Amazon now collects sales taxes in 8 states, and the rest will not be far behind.<\/p>\n

None of this takes away from what Amazon has accomplished.\u00a0 It is a wonderful company and a pioneer in internet commerce.\u00a0 It\u2019s a disruptor that almost singlehandedly put Borders Books out of business and remade the publishing industry in its own image.\u00a0 I love the company and admire its founder, Jeff Bezos.<\/p>\n

But I hate the stock.<\/p>\n

At current prices, it is a terrible investment.\u00a0 To pay 70 times earnings for a $129 billion company is ludicrous, and investors who buy at these levels are no less likely to get hammered than the investors in other great bubble stocks.<\/p>\n

My recommendation?\u00a0 Buy Wal-Mart.\u00a0 And if you want to make a pair trade out of it, short Amazon.<\/p>\n

Disclosures: Sizemore Capital is long WMT. This article first appeared on InvestorPlace<\/a>.<\/em><\/p>\n

SUBSCRIBE <\/a><\/strong>to Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post Wal-Mart \u2026 or “The Wal-Mart of the Web”?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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