Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Walmart approaches $500 Billion in Revenue

Walmart (NYSE: WMT) is approaching an important milestone that many people seem to have missed. Statista analysts expect the retailer to generate more than half a trillion ($500 billion) in revenues in 2018.

Statista calculated that Walmart generated $485.87 billion in revenues in 2017 and will generate $500.34 billion in revenues in 2018. Therefore, Walmart’s revenues could increase by $14.47 billion in 2018.

In contrast, Statista projects Amazon (NASDAQ: AMZN) will generate $205 billion in revenues in 2018. Statista calculated that it will not be until 2022 that Amazon approaches Walmart’s revenues. Amazon will record $356 billion in revenues in 2022 if Statista is correct.

Walmart is the World’s Largest and Richest Retailer

Obviously, Walmart and not Amazon is the world’s largest and richest retailer. More importantly, Amazon will not approach Walmart’s revenues soon.

Value investors should take note because Walmart was trading at $96.89 a share on 11 September 2018. Amazon shares were trading at $1,948.72 on the same day.

Moreover, Walmart should pay a 52¢ dividend on January 2, 2019. Amazon pays no dividend while Walmart’s dividend has increased by one cent a year, every year since 2013.

Walmart owners have enjoyed an astounding 42 years of dividend growth according to To add icing to the cake, Walmart rewarded shareholders with a dividend yield of 2.17%, an annualized payout of $2.08, and a payout rate of 43.3% on 7 September 2018.

Walmart is making a lot of Money

That dividend is safe because Walmart is making a lot of money. The world’s largest retailer reported revenues of $122.690 billion, a gross profit of $30.983 billion, an operating income of $5.154 billion, and a net income of $2.134 billion for 2nd Quarter 2018.

Walmart is still generating a lot of cash in the form of an operating cash flow of $5.934 billion, a financing cash flow of $4.966 billion and a free cash flow of $3.477 billion for 3rd Quarter 2018. Walmart is keeping more that cash in the form of $15.840 billion in cash and equivalents reported on July 31, 2018.

All this indicates Walmart has the cash to compete with Amazon. Interestingly, Amazon has a lot more cash than Walmart. Amazon reported $19.823 billion in cash and equivalents and $27.05 billion in cash and short-term investments on June 30, 2018.

Has Walmart Lost its Historic Edge?

That cash might give Amazon the edge over Walmart because it gives Jeff Bezos money to burn in competition. Walmart’s historic edge was that it always had far more cash than other retailers.

Now there is a retailer with more cash in the bank than Walmart. Moreover, that retailer has a very different model yet competes directly with Walmart. Amazon has far fewer stores and relies on other companies’ delivery infrastructure to reach customers.

Notably, Amazon has sources of revenue that Walmart cannot touch such as Amazon Web Services (AWS). AWS generated $6.105 billion in revenue in 2nd quarter 2018, up from $4.1 billion in 2nd Quarter 2017, Statista calculated.

Such extra sources of cash might be Jeff Bezos’ key to victory in the retail wars. For example; Bezos can afford to spend several billion dollars perfecting Amazon Go, and rolling it out. He can also build almost unlimited numbers of fulfillment centers across the globe.

The extra cash gives Amazon the ability to invest in potentially lucrative infrastructure; such as automated stores, fleets of jets, and robots. Walmart will have a difficult time keeping up with that, even though its resources rival Amazon’s.

Walmart has to pay over 1.5 million people to work over 5,000 stores around the globe. In contrast, Amazon’s workforce was a little over a third of Walmart’s. Geekwire reported Amazon employed 566,000 people in February 2018.

Will Amazon Ever Overtake Walmart?

Therefore, Amazon is delivering far greater revenue growth than Walmart’s at a much lower cost. Amazon’s revenues grew by 39.34% during 2nd Quarter 2018, Stockrow calculated. Walmart’s revenues grew by 4.38% during 2nd Quarter 2018.

I expect Amazon’s revenues to overtake Walmart’s in the late 2020s, possibly around 2028. Note: that will only occur if Amazon’s breakneck revenue continues, and Walmart does not experience significant revenue growth.

Those are big ifs, so it is entirely possible Amazon might never exceed Walmart in revenues. That does not mean Amazon will not continue to grow, instead Amazon’s growth capacities might not be as great as Walmart’s.

A danger Amazon faces is that Walmart and others will copy its retail innovations. That is already happening; Walmart is building fulfillment centers and now offers Americans a delivery service as fast as Amazon’s.

Is Walmart Amazon Proof?

There is a historical precedent for that, in the early 1900s Sears; a catalog company, was America’s dominant retailer. After World War I; and the rise of the automobile, Sears lost ground to brick and mortar rivals like Woolworth’s and department stores.

Sears responded by building its own network of department stores. Sears would keep its position as America’s dominant retailer until the 1990s. Along the way, Sears could capitalize upon such innovations as credit cards and suburban shopping centers to grow bigger.

Sears could build stores in the suburbs; and adopt credit cards, because of its extra cash. Therefore, Walmart can sink money into its online operations; automated stores, and new technology. As a result Walmart will probably be able to keep up with Amazon; and possibly block its entry into some markets.

The moral of the store is do not count Walmart out. The world’s largest retailer has the resources to maintain its dominance for decades to come despite Amazon’s explosive growth.

If you want to keep just retailer in your portfolio, seriously consider Walmart. Its shares are cheap and Walmart pays a nice dividend. More importantly; Walmart potentially has decades of growth in its future, despite Amazon’s relentless competition.