eCommerce Throwdown: Amazon vs. Wal-Mart vs. Target

Walmart.com

Amazon.com  (NASDAQ: AMZN  ) might be the largest online retailer in the world, and that leads to significant growth potential given the rise of the digital consumer, but Wal-Mart Stores (NYSE: WMT  ) and Target (NYSE: TGT  ) are eager to steal share.

E-commerce positioning versus net income
Below is an important list that every retail investor should keep up with. Retailers generating the most unique visitors to their sites per month:

  • Amazon.com sites: 164 million
  • eBay: 104 million
  • Apple websites: 90 million
  • Wal-Mart Stores: 56 million
  • Target (NYSE: TGT  ) : 44 million

Based on that list, you might immediately say to yourself, "I don't care what this guy writes. I'm investing in Amazon!" Admittedly, this might pay off. Amazon has one of the most innovative CEOs in the world in Jeff Bezos. Based on past innovations, it's likely that more high-potential innovations are around the corner, and this could lead to top-line growth. The problem is net income.

Below is a list of Amazon's net income for its last five fiscal years:

  • 2009: $902 million
  • 2010: $1.15 billion
  • 2011: $631 million
  • 2012: ($39 million)
  • 2013: $274 million

Amazon has been in a capital investment cycle building out its business, but this has been said for many years without consistent net income growth. 

With the recent hike in the Amazon Prime membership price to $99 per year from $79 per year, Amazon might see more consistency in this area, but we still don't know if it will impact the company's revenue due to slower membership growth.

As far as Target goes, look at the past four fiscal years (we don't want to use quarters due to the data breach):

  • 2009: $2.49 billion
  • 2010: $2.92 billion
  • 2011: $2.93 billion
  • 2012: $3 billion
  • 2013: $1.97 billion

The decline in 2013 happened for three reasons: the data breach, poor performance in Canada, and a hesitant consumer. Only one of these three factors should dissipate soon (data breach). Therefore, while Target also has future potential on the bottom line, there are concerns.

Wal-Mart, on the other hand, can be summed up with ease. Despite being ranked No. 4 for unique visitors per month, it's the 16th most profitable company in the world as well as the most profitable retailer in the world. It generated $15.88 billion in net income in fiscal-year 2014. This should put investors' minds at ease since this kind of net income allows for consistent dividends and stock repurchases as well as a large safety net.

Wal-Mart's future growth channels
According to Wal-Mart's website, more than 50% of its customers own a smartphone. Therefore, it needs to capitalize on this trend. Wal-Mart has the largest collection of e-commerce data in the world, which will increase the company's odds of successful e-commerce initiatives in the future.

Currently, Wal-Mart is trying to bring the physical and online shopping experiences together on mobile devices. Wal-Mart is constantly developing mobile apps, which currently include:

  • Early Access Notifications: first to know about in-store and online specials
  • Fast & Easy Refills: reorder prescriptions and pick up in-store
  • Store Mode: weekly ad sent to phone when you're in a Wal-Mart store
  • Shopping List: add items by typing, scanning, or speaking into phone, then tally for budgeting purposes
  • Check Pricing Availability: check product price and availability online and in-store
  • Weekly Ad: product details, customer ratings and reviews, sales
  • Scanner: product information on price, ratings and reviews, other content
  • Customer Ratings and Reviews: self-explanatory
  • Store Finder: enter zip code for store information (directions, phone number, hours)
  • Shop Walmart.com: millions of products to choose from online

Wal-Mart's e-commerce sales increased 27% in the first quarter year over year, but e-commerce isn't its only growth channel. Other growth channels include small-box stores and international expansion.

The bottom line
Wal-Mart might not be an exciting investment, but that doesn't mean it won't be a long-term winner. In fact, investing in Wal-Mart can be like watching paint dry in slow motion, but when that paint dries, you might see the image of a large green dollar sign.

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