Why Walmart Will Never Be Amazon

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Shares of Walmart Inc. (WMT) plunged by just over 10% on February 20 to $94.11, after the company reported earnings that fell short of estimates. But an even worse indicator is that the company said that e-commerce sales slowed during the last quarter. Shares of Walmart were up by over 51% from February 17, 2017, through February 19, 2018, a substantial gain for a company expected to grow revenue by only 5% in fiscal 2019. (For more, see also: Walmart Sellers in Control After Earnings Miss.)

Walmart's stock surged for much of the past 52-weeks because investors saw significant growth in Walmart's e-commerce division. But those considerable growth numbers came crashing down when the company said online sales grew at only 23%, down from 50% in the prior quarter. But despite its efforts, Walmart is not Amazon.com Inc. (AMZN) and is likely not going to be the second coming of Amazon. 

WMT data by YCharts

No Growth

Walmart is expected to see its revenue grow by only 5% in its fiscal year 2019, to roughly $507 billion, while earnings are expected to remain unchanged at $5.10, and increase by only 6% in fiscal 2020 to $5.45, according to Ycharts. That lack of growth comes at a price of nearly 17.5 times 2020 earnings estimates, a hefty price to pay for no growth. 

WMT Annual Revenue Estimates data by YCharts

E-commerce Not Enough

To make matters worse, Walmart's reported U.S. e-commerce sales of $11.5 billion in 2018 in the conference call or just 2.2% of the company's total revenue of approximately $500 billion. Amazon, the e-commerce giant, is expected to see its revenue grow by 31% in 2018 to $233.22 billion. This is quite the contrast in the amount of revenue growth the two companies are posting. 

Additionally, Walmart would need to see substantially more growth out of its e-commerce unit before it would start having a meaningful impact on topline revenue growth. 

Gross Margin Pressures

WMT Gross Profit Margin (Quarterly) data by YCharts

Gross profit margins also slipped in the quarter, declining to 24.1%, down by 61 bps from the same period a year ago. As previously noted in an Investopedia article on November 20, Walmart can't afford to even get into a pricing war with Amazon, without risking more margin deterioration. Amazon has gross margins of nearly 36%, and investors appear to give Amazon a lot of slack when it comes to the bottom line, with the focus mostly on topline growth. (For more, see also: Why Walmart's E-Commerce Growth Won't Matter.)

Walmart will likely continue to be plagued by slow revenue growth and investors are likely now realizing that Walmart is not Amazon, and the e-commerce growth the company is currently experiencing will not be enough to move the pendulum for some time. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.