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How Amazon.com Surpassed Wal-Mart Stores, Inc.
The new king of retail Amazon surpassed Wal-Mart in market value last week for the first time ever, becoming the world’s most valuable retailer. The transition has been a long time coming, but it warrants a look back to understand how it happened. A historic week
How Amazon did it
How Amazon did it As you can see from the chart on the last page, Amazon was worth less than $25 billion as recently as the 2008 recession, and the stock has gained more than 1,000% since then. Wal-Mart, meanwhile, has actually lost value since the tech bubble of the late 1990s.
Two big reasons The consistently strong growth of its e-commerce unit. The explosive potential and profitability of its cloud computing unit. Amazon shares are up 70% year to date for two reasons.
The power of e-commerce Though revenue growth has fluctuated, it’s remained above 20% for nearly Amazon’s entire history, thanks to its leadership in e-commerce.
The cloud will be huge Sales at Amazon’s cloud unit grew 81% in its most recent quarter to $1.8 billion. Profits also soared by more than five times to $391 million, giving the segment a profit margin of 21.4%. Investors are thrilled with AWS results
But Wal-Mart is still much bigger In terms of sales and profits, Wal-Mart still dominates
Profits are no contest
Wal-Mart had plenty of chances In 1999, then-Wal-Mart CEO Lee Scott actually invited Jeff Bezos to Bentonville to discuss acquiring his company. Bezos instead offered to run Amazon’s website. In the intervening years, Wal-Mart focused on opening superstores instead of building out its e-commerce platform, and now it must play catch-up.
The lesson for investors Future growth is often more valuable than current profits. Though Wal-Mart is still hugely profitable, its future is in jeopardy as sales and profits have turned flat. Amazon, meanwhile, has foregone profits to instead build out competitive advantages, leading to strong sales growth and a brighter future.
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