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Amazon is pulling even further ahead of Walmart

01 Mar 2018

Walmart Inc.’s e-commerce slowdown in the fourth quarter shows that Inc. is widening its online lead against the retail giant, Evercore analysts say.

Walmart WMT, -0.23%   reported e-commerce sales growth of 23% in the most recent quarter, a sharp decline from the 50% growth the prior quarter. E-commerce sales growth for the year was 44%.

The company expects e-commerce sales to grow 40% in fiscal 2018, which MKM analyst Patrick McKeever says “could be a stretch.”

Walmart stock is down 14% for the past month, though it’s up 30% for the last year. Amazon shares are up 79.4% for the past year. The Dow Jones Industrial AverageDJIA, -1.50%  is up 23.4% for the past 12 months.

“Compared to Amazon’s 24% growth in the fourth quarter for online stores and third-party seller services off a dramatically larger base, it is becoming increasingly clear that Amazon’s lead over the traditional retailer is only growing,” wrote Evercore analysts led by Anthony DiClemente.

“This lead is likely to take on greater importance as billions of e-commerce dollars come up for grabs in the coming years from greater penetration of FMCG [fast-moving consumer goods] categories,” he said. Those items include toiletries, detergent and disposable diapers.

Morgan Stanley analysts think Walmart could learn a thing or two about execution from Amazon AMZN, -0.01%  .

“Simply put, Walmart’s systems/infrastructure were not equipped to handle seasonal demand,” wrote analysts led by Simeon Gutman. “Walmart’s execution issue suggests 1) its infrastructure is inadequate or 2) it has yet to harmonize its omnichannel assets (3,600 Supercenters, 22 e-commerce-dedicated fulfillment centers), particularly during peak demand season.”

The outcome also suggests that Walmart has a problem resonating with a broad consumer base, which will hurt its head-to-head chances against Amazon. Its grocery business, including its online efforts, has high appeal with existing customers, but it may not be winning over new customers in categories that aren’t food.

“All of this speaks to Amazon’s moat and the challenge Walmart and other retailers face as they attempt to weaken this moat,” Morgan Stanley said.

To counter this, Walmart will likely have to get more aggressive on pricing or free shipping. This “would further prolong profitability for this division and exert greater competitive pressure across the retail sector,” the note said.

Morgan Stanley rates Walmart shares equal weight with a $99 price target, down from $106.

Credit Suisse analysts are more upbeat about Walmart’s “evolving competitive position,” with near-term growth hampered by accelerated investments.

“Walmart is one of the few retailers with robust store and online growth, and positive traffic and ticket trends,” analysts led by Seth Sigman highlight. Credit Suisse has initiated Walmart with a neutral stock rating and $102 price target.

“Our work shows a shift in web traffic to higher-income consumers (even to just the website,” the note says. “This progress, along with a significant divergence in margin performance may be helping shape conversations with vendors. We ultimately believe it is supportive of a power shift to Walmart that could provide a range of benefits.”

Source: Market Watch