BUY: Amazon
Amazon started as an online retailer, but that description undersells what the iconic business has become in recent years. The core shopping business is enormous, but layered on top of that are some huge and very profitable “side hustles”. Amazon Web Services, which underpins an immense chunk of the internet and plays a big role in the AI boom, pulls in around $40bn a quarter. Amazon Prime, essentially a paid membership club that bundles fast delivery with streaming, music and other perks, adds another $14bn quarterly. Then there’s advertising, which started as a small add-on product and quickly exploded into a $22bn-a-quarter business. And of course, the retail operation itself, both online and physical, brings in roughly $140bn in quarterly sales. Put it all together, and you’re getting a potent mix of businesses trading at about 30 times forward earnings.
SELL: Walmart
Old-school shopping giant Walmart, on the other hand, generates about $190bn in quarterly revenue, but almost all of that comes from straightforward retail. There’s no cloud business to speak of, advertising is still relatively small, and Walmart+ is just a copy and paste of Amazon Prime. To be clear, Walmart — which owns the old Massmart retail hub in South Africa — is a great business and has executed incredibly well in a tough, low-margin industry for decades. It’s efficient, dominant in its space, and has earned its place. But it might baffle the more seasoned investor that the market accords Walmart a markedly higher valuation than Amazon. Right now, Walmart trades at roughly 43 times forward earnings, which is a meaningful premium despite having fewer high-margin, high-growth engines under the hood. For investors of value, this price point might irk.
Byron Lotter is an investment analyst at Vestact
