Can Walmart catch Amazon in the e-commerce arena?

Investing.com -- Bernstein analysts in a recent note examined whether Walmart (NYSE:WMT) can close the gap with Amazon (NASDAQ:AMZN) in e-commerce. 

The brokerage presents a side-by-side comparison of both companies, focusing on growth, profitability, category exposure, and valuation.

Walmart’s U.S. e-commerce business has been growing at over 20% annually and is expected to maintain a double-digit CAGR through FY30. 

Bernstein estimates Walmart’s e-commerce penetration could rise from 17% in FY25 to 25% by FY30, implying a 12% compound annual growth rate for e-commerce sales. 

This momentum is fueled by an expanding third-party (3P) marketplace, which currently accounts for 20% of its e-commerce GMV. If that share grows to one-third by FY30, the 3P business could expand at a 26% CAGR, outpacing the 11% growth expected for first-party (1P) e-commerce.

Despite this progress, Bernstein notes that “Walmart’s right to win on e-commerce lies in its leadership position in grocery,” which accounts for 60% of its e-commerce GMV. 

This positions Walmart in contrast to Amazon, where only 5% of GMV comes from grocery. Amazon’s GMV is dominated by general merchandise (73%), while Walmart’s stands at 26%.

Amazon continues to lead with a 41% share of the U.S. e-commerce market in 2024. According to Bernstein, “Amazon’s best-in-class fulfillment footprint enables it to offer the fastest and most reliable delivery network with an extensive product mix at a reasonable price.” 

The company expanded its same-day delivery network by over 60% last year, now reaching more than 140 metro areas, a move that supports growth in everyday essentials and health and personal care.

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Walmart’s e-commerce business is nearing break-even. Bernstein estimates a -4% contribution margin on a fully loaded basis, improving to +0.5% when including revenue from retail media, marketplace fees, and Walmart+ subscriptions. 

Analysts project further margin expansion through cost control and monetization strategies, “We estimate that WMT US can improve its e-commerce profitability by $5 per order by growing retail media, reducing same-day last mile delivery costs and next-day e-commerce fulfillment costs.”

These gains could bring Walmart’s subsidized contribution margin to +6.9% in the coming years.

Amazon’s retail profitability is higher, with a domestic margin of approximately 6% in 2024 when advertising revenue is included. Excluding ads, margins are closer to break-even. 

Bernstein emphasizes the strength of Amazon’s logistics optimization and automation initiatives, stating that “this is just the start on their cost optimization journey,” with additional savings expected from expanded use of robotics in fulfillment centers.

Valuation reflects these differing profiles. Walmart currently trades at a forward P/E of ~35x, while Amazon trades at ~24x. 

However, Bernstein believes Walmart’s headline multiple overstates the reality, “Adding back its e-commerce led profitability improvement potential, we believe that WMT is trading closer to 28x than 35x.” 

Amazon, meanwhile, is trading below its five-year average on EV/EBIT and EV/FCF bases, and analysts argue the discount is “overdone,” given its diversified business mix, including cloud and advertising.

Bernstein says that “both WMT and AMZN are structural eCom winners,” with each commanding leadership in different segments. 

Walmart’s position in e-grocery, coupled with its efforts to grow high-margin revenue streams, offers a credible path to profitability. Amazon retains its edge in general merchandise and fulfillment scale, benefiting from a mature infrastructure and a robust advertising platform.

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While Walmart is not expected to match Amazon’s overall scale, its growth trajectory in e-commerce and focus on operational efficiency position it as a formidable competitor, especially in high-frequency, defensible categories.

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