When holding both WMT and TGT in portfolio I think it is quite important to have a look on Amazon as well, so let’s have a look.

First of all some financial data, to put business in context. Market cap is around $400b, net cash around $20b. As it comes to capitalization AMZN is almost twice as big as WMT, though WMT is a leader of retail market (as it comes to revenues).

Broadly speaking Amazon consists of two segments – „retail” (both NA and International) and Amazon Web Services. Both are growing very fast:


Obviously margin on AWS must be significantly higher. In fact it is interesting to see that over the last twelve months AWS brought more operating income than NA/International operations. Also growth is significantly higher in AWS part.

Does it mean that AWS part is more valuable? Well „time will tell” as Bert from Dividend Diplomats says J What I think is that currently retail business is more valuable. This is because there is bigger scale and potential to increase margin is significantly higher. Even if WMt will invest heavily in e-commerce I think that in the long term operating income can be double digit, and this is what investors are believing.

If we look on financial results in long term we can see that expectations are high:


Though also growth is very strong. What is not shown in this consensus is cash flow which is Amazon generating.


The bigger the scale the fastest cash flow generation. This is important from investors’ perspective. In many cases companies need capital to grow. Amazon in fact is generating cash flow when growing!! This is awesome!

The key question is – what can go wrong? If you see business growing so fast it is easy to pay high multiple. When something goes wrong you stare and think “for what did I pay so much?”. For now I see no reason for share price to decline, but as times flies different things can happen. Sales growth might deteriorate due to competitiveness, some currency changes might be negative, tech giants will compete with AWS and offer new services, some regulations, no one knows. What I see in current valuation is that Amazon is not cheap, but obviously it is an interesting growth story. Over the last year shares are up by 50%. Do you really believe that fundamentals improved by 50%??


Disclaimer: AMZN – no position