Breaking Up Amazon.com Is Plain Old Silly-Talk

Remember when every retailer's favorite company to hate was Wal-Mart (WMT 4.19%), the big, bad box retailer that was destroying mom-and-pops and forcing small- and mid-sized department stores to close in droves? Despite cries to break it up, it's gone on to become America's biggest retailer by sales. Nowadays, it's Amazon.com (AMZN +0.27%) that's causing people to raise their pitchforks. But much like Walmart, making a case for breaking it up seems a bit silly, given how big and competitive retail remains.

What's the fuss?

Amazon's pioneering of e-commerce continues to transform how consumers shop, and last week, the company's decision to tackle traditional brick-and-mortar retail by acquiring Whole Foods Market (WFM +0.00%) for $13.7 billion increased worry that Amazon is getting too big for its britches.

IMAGE SOURCE: GETTY IMAGES.

But the numbers don't really suggest that Amazon is nearly as big as the media reports might have you believe. Yes, it does over $140 billion in sales annually, and acquiring Whole Foods adds another $15.7 billion in fiscal-year sales, but that's not really a lot when you consider industrywide revenue, and it's still miles south of the sales that Walmart racks up.

According to Census data, e-commerce sales totaled $395 billion in 2016 and $106 billion in the first quarter of 2017 alone. Although e-commerce sales are growing quickly, they represent only 8.5% of the country's retail spending. If you divide Amazon's total sales into these figures, it accounts for 36% of 2016 e-commerce sales and 34% of first-quarter sales. Or, to put it differently, about two-thirds of e-commerce sales go to other retailers that sell online, too.

Comparing Amazon's revenue to Wal-Mart also suggests that Amazon's a long way away from scary-big. In fact, Amazon's sales would have to more than triple to eclipse Walmart's sales in 2016. 

Data source: YCharts.

It's also important to keep in mind that Amazon's revenue isn't all from its retail business. Amazon runs multiple businesses under its umbrella, and in this respect, it may be more like Warren Buffett's Berkshire Hathaway than J.C. Penney.

In addition to being a retailer, it's also a technology services company (Amazon Web Services), a consumer electronics company (Kindle, Echo, Fire Stick), and a media company (Prime).

Growing reliance on hosting services propelled Amazon's web services segment sales to $3.7 billion in Q1, up from $2.6 billion a year ago. That makes it a $15 billion business that's competing head to head against technology titans like Alphabet and Microsoft. According to industry watcher Gartner, the market for public cloud infrastructure will grow 36.8% to $34.6 billion worldwide this year.

In consumer electronics, the company's Echo and Echo Dot are the market share leaders in the virtual-assistant market, but Alphabet, Sonos, Microsoft (via Cortana), and Apple Inc. (via Siri and soon the HomePod) all compete with it in that market. Similarly, Alphabet's Chromecast is stiff competition for Amazon's Fire Stick, as are smart TVs and DVRs. In tablets, Amazon competes with Apple, a consumer electronics Goliath with $216 billion in sales in 2016. 

Amazon's Prime service is similarly far from alone in the online entertainment market. Amazon battles Apple, Pandora, Spotify, iHeartRadio, and Alphabet, as well as others in online music. In online video, it competes with Alphabet's YouTube, Netflix, Hulu, broadcasters, and traditional and satellite television.

Still think Amazon should be broken up? Consider that despite all of the worry over Amazon's size, its $142 billion in trailing-12-month sales still only ranks it 16th in size in terms of sales for companies with market caps over $20 billion. Toyota Motor, Berkshire Hathaway, UnitedHealth Group, and CVS Corp are some of the well-known names that remain far bigger than Amazon.

*Trailing 12 months. Chart by author.

What's in store for the future?

There's no denying that Amazon is laser-focused on disrupting multiple markets, that its innovation puts it in an enviable position of growing much bigger in the coming years, or that acquiring Whole Foods opens up all sorts of opportunities for the company to boost sales.

But it's too early to say that Amazon is anywhere near a point where regulators would have to take action, or that it will ever be that big. Just as Amazon has taken the luster off Walmart, an upstart could eventually crimp Amazon's growth, too. Savvy investors should be focusing on that -- not on Amazon's risk of a breakup.