Walmart (NYSE: WMT) and Amazon (Nasdaq: AMZN) are both thriving. Even before the coronavirus, their stocks were making new, all-time highs. But the coronavirus has led to an acceleration of their sales. Essentially, both companies are capturing an increasing share of consumer spending.
Given the size and ambitions of both companies, it's no surprise that they are slowly beginning to compete with their most direct competition being online. Walmart has not been willing to give up the e-commerce space to Amazon, and it's been building its marketplace, where it handles the back-end, payment processing, shipping, fulfillment, and logistics.
These efforts have been successful, and Walmart's online sales account for the bulk of its revenue growth. Its online sales have grown by 40% annually since 2017. During the first quarter, the pandemic resulted in online sales growing by 74% compared to the first quarter in 2019. Walmart is looking to take advantage of this momentum by introducing Walmart+.
According to reports, the competition is going to intensify as Walmart is planning to offer a subscription service that seems very similar to Amazon Prime, called Walmart+. It would cost $98 per year, and it will offer same-day delivery of groceries and store merchandise, discounts on certain items, early access to deals, and the ability to reserve the most coveted delivery slots.
Amazon has a clear lead with 150 million members. However, Walmart's major asset is its 4,000 stores. The company claims it has a location within 10 miles of 90% of the US population. The stores will enable same-day delivery for items in stores which Amazon will have difficulty matching. Amazon offers next-day delivery for Prime members for most items and same-day delivery for a few items.
Stock Price Impact
Another benefit of Walmart+, outside of its competition with Amazon, is it will lead to increased customer loyalty and the number of transactions. In some ways, the service is more of a threat to places like Target (NYSE: TGT) or Costco (NYSE: COST) or the local grocery store. Just like a Prime customer will first check Amazon, Walmart+ subscribers will opt to shop from Walmart as their first choice.
Due to these factors, Walmart's stock jumped nearly 10% for the week, following these reports. Its stock is now 1% away from making, new all-time highs. Walmart looks attractive by many measures. Its price to earnings ratio is 25 which is slightly higher than the S&P 500's 22. However, it's growing sales at a rate of 8% which is almost triple the S&P 500's revenue growth. Further, it has gross margins of 25% which is higher than the S&P 500. Finally, the business is less sensitive to slowing growth, however, its e-commerce unit is booming which gives it sustained growth potential. Given these factors, it wouldn't be surprising for Walmart to break out to new highs and keep trending higher.