According to a New York Times report earlier this week, there has been a shift in the way people are spending on retail. The report cited Factset data stating that in the 12 months ending in June, people spent in excess of $610 billion on Amazon.
In contrast, according to the report, brick-and-mortar retailer Walmart reported sales of $566 billion for the 12 months ending in July. It indicated that Amazon, the e-commerce giant, had dethroned Walmart.
Let’s compare these two retailers, Amazon and Walmart, using the TipRanks Stock Comparison tool, and see how Wall Street analysts feel about these stocks.
Late last month, Amazon delivered mixed second-quarter results. Net sales rose 27% year-over-year to $113.1 billion, but fell short of analysts’ expectations of revenues of $115.07 billion.
EPS came in at $15.12 per diluted share, versus $10.30 per diluted share in the same quarter last year. Analysts were expecting earnings of $12.22 per share.
According to Wells Fargo analyst Brian Fitzgerald, the revenue miss in Q2 was driven by 1P Online stores. A 1P online store refers to a first-party relationship with Amazon, wherein a given brand acts as a wholesaler and sells directly to Amazon as the retailer.
The analyst reiterated a Buy rating following the Q2 results but lowered the price target from $4,500 to $4,250, with a 32.8% upside on the stock.
However, third-party sellers (3P) on Amazon, comprised of small and medium-sized businesses, made up 56% of AMZN’s total paid units in Q2, a rise of 53% year-over-year. The company’s management stated at its Q2 earnings call that 3P sellers “were a big contributor to Prime Day’s success,” back in June. (See Amazon stock chart on TipRanks)
The analyst estimates a robust “3P unit growth of 22% YY [year-over-year] and a strong two-year CAGR [compounded annual growth rate] of 37%. We estimate revenue per 3P unit grew a robust 10% YY.”
Fitzgerald noted another key positive for the stock, that is, Amazon’s Prime membership. However, Amazon noted on its earnings call that while Prime members continued to spend more, “growth in Prime member spend moderated compared to spending seen during the peak of the pandemic.”
However, Amazon continues to see strong Prime membership growth and user engagement, as it welcomed “more than 50 million new members in the past 18 months, and Prime member benefits usage remains high.”
The other two positives in favor of AMZN, according to the analyst, are the stellar growth in advertising and AWS (Amazon Web Services).
Advertising, part of the company’s Other revenues, jumped 83% year-over-year in Q2, excluding currency exchange fluctuations, “driven largely by continued acceleration in our ads business,” according to Amazon management.
AWS business segment saw a 29% year-over-year rise in revenues to $10.8 billion in Q2, and is currently at an annualized revenue run rate of $59 billion, up from $43 billion during the same period last year.
Annualized revenue run rate is calculated by multiplying, by 12, the revenue in the final month of the quarter.
In Q3, Amazon is projecting net sales in the range of $106 billion to $112 billion, while operating income is expected to be between $2.5 billion and $6 billion, slightly below the $6.2 billion generated in the same quarter last year. The e-commerce giant also expects to incur $1 billion in COVID-19 related costs.
Turning to the rest of the Street, consensus is that Amazon is a Strong Buy, based on 30 Buys. The average Amazon price target of $4,214.13 implies an approximately 31.6% upside potential from current levels.
Earlier this week, omnichannel retailer Walmart reported better-than-expected second-quarter results and lifted its full-year 2021 guidance.
The company reported adjusted earnings of $1.78 per share in Q2, up 14% year-over-year, and significantly surpassed the Street’s estimate of $1.56 per share. Additionally, total revenue climbed 2.4% to $141.05 billion, outpacing analysts’ estimates of $136.74 billion.
However, Walmart’s International net sales declined 15.2% year-over-year to $23 billion, mainly as a result of divestitures.
Doug McMillon, Walmart’s President and CEO commented, “We had another strong quarter in every part of our business. Our global eCommerce sales are on track to reach $75 billion by the end of the year, further strengthening our position as a leader in omnichannel.”
The company’s market share in the United States increased when it comes to the grocery business, with strong comparable sales at 6.1%, led by Walmart’s stores.
WMT continues to build a sizeable e-commerce business globally and expects to report $100 billion in global e-commerce sales over the near term. In the U.S., WMT e-commerce sales grew 6% year-over-year and 103% over a two-year period.
The company’s in-house advertising offering, Walmart Connect, saw sales jump 95% year-over-year, with a rise in new advertisers. (See Walmart stock chart on TipRanks)
Notably, Walmart’s management stated on its earnings call, “We’re also rapidly expanding higher-margin businesses like advertising, data monetization and eCommerce marketplace, which gives us flexibility to invest aggressively for the future while growing profit near term. These businesses are in different places along the maturity curve, but we’re scaling them.”
Jeffries analyst Stephanie Wissink approved of this strategy and said, “We are encouraged by management commentary and clear progress on key alt [alternate] revenue streams which, while still small, are beginning to benefit the model.” The analyst believes that these new revenue streams could unlock value for the stock.
The analyst reiterated a Buy rating and a price target of $184 (23.4% upside) on the stock, following the Q2 results.
Analyst Wissink is of the opinion that WMT’s inventory is positioned well for the second half of the year, as it went up 20% year-over-year. The analyst added that even as the management was confident about the second half of the year, certain general merchandise categories were running out of stock, due to supply constraints.
This has led the analyst to “believe that better access to goods would unlock upside to 2H outlook.”
Turning to the rest of the Street, consensus is that Walmart is a Strong Buy, based on 19 Buys and 3 Holds. The average Walmart price target of $172.24 implies an approximately 15.5% upside potential from current levels.
While analysts are bullish about both stocks, based on the upside potential over the next 12 months, Amazon seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.