- Despite being the world's largest retailer, Amazon continues to innovate, diversify and increase revenue.
- Walmart and Target look to strengthen the ecommerce region of their respective businesses.
- Amazon is currently the most likely to build into the future, especially when we consider their rapidly growing AWS offering.
The retail industry is currently at a crossroads. With consumers more willing to buy online, ‘traditional retailers’ such as Target (NYSE:TGT) and Walmart (NYSE:WMT) are having to revamp their ecommerce setup in order to compete. Partly due to more time spent developing the ecommerce arm of their business, Amazon (NASDAQ:AMZN) has practically perfected the art of getting consumers to spend on ecommerce, and return for more. In fact, they accrued $637 billion in net sales for 2014. So which of the 3 giant retailers hold the best investment potential today?
Despite an outage and traffic issues during ‘Cyber Monday’, Target reported record sales. Interestingly, Target decided to begin their Black Friday promotions 5 days early. The growth in Target’s ecommerce revenue shows that despite increasing investment in ecommerce from major retailers, they are able to thrive.
In terms of stock performance, Target has endured a good year. In the year-to-date, their stock price hasn’t dipped below $69, and peaked at $85. Therefore, in terms of stability, Target has outperformed the other retail stocks covered in this piece.
Target’s performance is driven by a multitude of factors, one of them being their promotional offerings and ability to ensure good foot traffic through their stores. From an ecommerce perspective, Target has had an admirable performance by increasing ecommerce sales by 20% in Q3.
Financially, Target’s net income growth outperforms the S&P 500 with an impressive 56.4% YoY increase in Q3 . Additionally, net operating cash flow skyrocketed 81.5% as compared to Q3 of 2014.
In March of 2015, Target set the aim of increasing ecommerce sales by 40% this year. We will find out whether they have achieved this in their next earnings report, even though it looks very likely for Target to fall short. However, they indicated that they expect their ecommerce sales to grow by 20% in the 4th quarter of 2015. Interestingly, Target reported double the level of traffic to their online platform as compared to last year. The traffic was so unexpected that their servers couldn’t keep up, leading to an outage of 20 minutes and a queue to buy on the site.
Therefore, one can expect that they have met or possibly even exceeded expectations.
During their Q3 presentation, Target mentioned that same-store sales increased by 1.9% above consensus estimates. When we combine this with Target’s financial performance, and increased interest in its ecommerce division, Target has the momentum to spur them higher in 2016.
Walmart stock has been hit hard on the bourses in 2015. They recently decided to hike wages of employees, invest more money into providing discounts, and into the implementation of their ecommerce strategy.
During their last earnings call, they reported that they expect earnings per share to drop between 6-12%. As a result, the shares took a tumble by 10%- their worst day in 15 years. However, Walmart would have had to make significant investments in these areas at some point. Walmart’s management just decided to do them all at once.
Financially, Walmart has been able to increase their net operating cash flow by 37.3%. However, Walmart stock has lost 28.53% of its value; therefore, present holders will be hoping for a resurgence in 2016.
Despite Walmart’s troubles in 2015, its investments in ecommerce and customer service are already paying off. Notably, foot traffic and same-store sales are up. This allowed Walmart to raise its annual profit forecast. Additionally, in a move set to increase its ecommerce footing, Walmart is set to follow Amazon, and has set plans to have items delivered by drones. Therefore, Walmart can add significant revenue to their topline in the near future.
With a market cap pushing past $311.6 billion, Amazon retains the title of the world’s leading ecommerce retailer. Outside of ecommerce, they continue to make strategic investments in order to increase the value of their brand, and improve their current offerings.
Amazon has put in an admirable performance during 2015. In fact, Amazon outperformed the S&P 500, plus net income shot up by 118.1% (Q3 2015), as compared to the same quarter last year. Amazon’s stock performance has been in direct contrast with Walmart’s woeful performance in 2015.
Plus, Amazon recently announced 1 hour deliveries with Amazon Prime Now. This is a move designed to increase customer satisfaction, reduce costs, and compete directly with brick-and-mortar retailers. Amazon also has the rather futuristic plan of making deliveries via drones. Therefore, this should cause disruption in the marketplace and allow Amazon to pull ahead.
In conclusion, as competition in the retail and ecommerce space heats up, the big players are doing all they can in order to get an edge. Don’t let Walmart’s stock performance this year dissuade you. Arguably, they have the best economies of scale among the leading global retailers. It won’t be far-fetched to expect a strong resurgence in 2016.
Target continues to show impressive results; and have a management with high expectations. As they launch into a two-horse race with Walmart in the US, it won't be surprising to see them pull ahead. They are certainly one to keep a close eye on.
However, when we consider Amazon’s strong momentum going into 2016, and the fact that they have so many plans which are set to add significant revenue in the near future, it is best to go with Amazon stock. In fact, the big question is: when will Amazon’s growth end?