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Comment by Aurornis | Hacker News Reader

> Amazon's core business does not make sense. Despite being so massive, their retail operation makes almost no money.

Net profit margins for retail are only around 3% across the industry.

Amazon isn't actually doing anything unusual in that regard. Retail is just a very low profit margin business whether it's physical or online.

These numbers are always confusing to those of us in the tech world where SaaS net profit margins are always very high.

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This is correct, but it doesn't explain why Amazon would have a 2x market cap over Walmart when they both roughly make the same revenue.

You have to believe that Amazon is poised for much higher growth than they are to justify their current stock price.

These are different businesses. Walmart has a massive retail footprint, where Amazon does not.

Amazon’s huge 3p seller network means it can offer advertising as a revenue stream in a way Walmart can’t compete with.

Their business models are increasingly converging with both generative revenue through seller fees, subscriptions, and advertising. Amazon is ahead in most of these areas and also has the higher margin revenue from AWS. Amazon also has a large base of prime subscribers they can sell incremental services to.

The revenue curves do indeed look a bit different:

https://www.macrotrends.net/stocks/stock-comparison?s=revenu...

Even more so if you compare EBITDA:

https://www.macrotrends.net/stocks/stock-comparison?s=ebitda...

It seems like AMZN has significant growth priced-in to the stock, but retail growth will become increasingly challenging as their market share increases.

> ”it doesn't explain why Amazon would have a 2x market cap over Walmart when they both roughly make the same revenue.”

Why does Tesla have 15x the market cap of BYD, despite BYD selling more cars, having more revenue, and much faster revenue growth?

> This is correct, but it doesn't explain why Amazon would have a 2x market cap over Walmart when they both roughly make the same revenue

Because Amazon and Walmart are two different companies with very different product offerings.

Retail can only grow so far. AWS continues to grow at a relatively incredible rate compared to Walmart's business.

>You have to believe that Amazon is poised for much higher growth than they are to justify their current stock price.

How many decades now have we lived in a world where the demand for investment far outstrips sane investment opportunities? In such a world, do stock prices have to be justified as you insinuate? And what happens when the prices are far higher than can be justified? I ask not rhetorically, but rather whether I should be hoarding shotgun shells and canned goods and hiding in the basement.

Comparing to Walmart, though, I would expect higher growth. Would you not?

Amazon's free cash flow rises year over year (apart from the post-COVID period) [0] while Walmart's doesn't [1] and price multiples are largely determined by expected FCF over time not directly revenue/EBITDA. FCF rain or shine maps roughly onto possibility of paying out dividends/buybacks, which determines the value of an equity in capital markets ("discounted present value of a company's future cash flows").

[0] https://www.macrotrends.net/stocks/charts/AMZN/amazon/free-c... [1] https://www.macrotrends.net/stocks/charts/WMT/walmart/free-c...

Walmart doesn’t have a cloud computing side business that’s wildly profitable.

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