Please help with the following problem with clear explanations! Compare and cont

Question

Please help with the following problem with clear explanations!

Compare and contrast Amazon to Wallmart. Use the following metrics:

1) P/E, P/Sales, MV to book value.

2) Expound on their strategy. Ascertain that you include the move of WMT to become a stronger force on the online space. Will people still shop in person? That is a critical question. Which firm would you buy and why? The "why" gets all the points. It is possible you would buy neither, or both.

*The financials are based on the companies latest numbers and statements* HINT: Use Yahoo Finance.

Explanation / Answer

1. Currently for the year 2016 the P/E, , P/Sales, MV /BV for both the companies is as follows

EBITA for Amazon is 12.3 billion, operating margin is 2.31%. For Walmart EBITA is 32.87 billion, and operating margin is 4.06%.

There are few things to be checked before we think of analysing the two companies. Firstly, the domain of both the companies are very different, one is in brick and motar, and other is in e-commerce. Secondly, Walmart despite being in brick and motar has been established company, being formed in 1962 compare to Amazon which came during 1994.

One thing to consider when comparing the financial Walmart has better operating margin and profit margin becuase of two reasons, higher sales, and getting tax shield from interest. Walmart has stores already established and the pipeline of sales is consistent and being in a capital driven busines loans give it a shield against taxes as well.So,

1. It has a mature learning curve

2. It has an established revenue pipeline

3. It has a defined audience

4. Using the nature of business to its advantage

5. Have a scope of integrating to Amazon's domain

Amazon on other hand does have some advantages becuase of its nature of business:

1.Easy to Expand

2. Reachability

3. Low infrastructure cost

4. In line with current trend

5. Convinient

Amazon has one advantage which is its diadvantage as well when comapred to Walmart. Amazon depends on Internet, and it has different business lines like Amazon Prime, Amazon Pay(E-Wallet) which although can easily be set up in any country, but it requires an audience which is mature and ready to accept these changes. It opens a whole new scope of expansion but is also a road block.

In comparision to Walmart it has a learning curve which enables it to expand to other countries (althogh may incur more cost in expansion) but the acceptabilty will be there as it has nature of business which people can associate. It though brings a risk as well, as the time is changing people are moving towards online platform because of convinient be it E-money as well.

If as an investor seeing not only the financial but the business and its nature, in long term Amazon has an edge, just becuase it is in a business which is growing, and with the target audience being youth which is growing across the globe as a percentage of population the acceptance to change would not be a hinderance for it anymore. Walmart in future may also be using a feature like E-Wallet. And even if it tries to venture into e-commerce or e-wallet it will firslty incur cost and would be behind Amzon, chasing it.

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