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Delayed Nasdaq  -  04:00 2022-09-29 pm EDT
114.80 USD   -2.72%
05:45pHouse approves scaled-down bill targeting Big Tech dominance
04:21pCarMax, Rite Aid fall; Enerpac, Vail Resorts rise
03:26pHouse approves antitrust bill targeting Big Tech dominance
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Analysis-Amazon has a Prime edge over Walmart: richer customers

07/29/2022 | 10:47am EDT
FILE PHOTO: A worker prepares packaged products for shipment at an Amazon Fulfilment Center in Tracy

NEW YORK (Reuters) - Amazon Inc's strong quarterly performance on Thursday offered another sign of a split in shopping patterns between more- and less-affluent Americans dealing with the highest inflation in four decades.

On Monday, rival Walmart Inc, which caters to a more cost-conscious customer, slashed its second-quarter profit forecast, blaming a shift in consumer spending towards more low-margin food products over apparel and other general merchandise.

This has led to an inventory buildup that the nation's largest retailer said it would markdown aggressively.

By contrast, Amazon, the world's largest e-commerce retailer, said consumer demand had ramped up in spite of inflation, helping it post better-than-expected second-quarter income and sales and issue an upbeat forecast for the summer season.

Amazon put the boost in performance down to its Amazon Prime customers, who pay $139 per year to get one- or two-day free delivery and Amazon Music and Prime Video for free.

"Prime members have meaningfully increased their spend since the start of the pandemic," Amazon CFO Brian Olsavsky said on an investor call on Thursday.

"Over that period, we've seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment," he said.

Earnings from U.S. companies over the past few months show that rising costs of fuel and food is impacting lower-income Americans more acutely, while those with bigger bank accounts are snapping up $50,000 GM trucks or $3,000 Louis Vuitton handbags.


"Honestly, it really comes down to Walmart having way too much inventory ... and (that) Walmart caters to a lower-income consumer, which is going to be much more impacted by the higher inflation," said Brian Yarbrough, an analyst at Edward Jones.

For Amazon, Prime members, who drive most of its sales volumes, are mostly found among wealthier households, several surveys show. One report from Piper Jaffray in 2016 showed that more than 70% of households with annual incomes topping $112,000 had a Prime memberships.

"Amazon's (third-party) marketplace proved to be a distinct advantage in the second-quarter, providing broader selection and pricing flexibility unavailable to most traditional retailers," Colin Sebastian, analyst at Baird Equity Research said in a note, pointing out how merchants made up 57% of Amazon's unit sales in the spring, up from 55% in the March quarter.

It also comes down to Walmart and Amazon's business models, analysts say.

While Walmart is heavily dependent on deeply cultivated relationships with suppliers to stock its more than 4,700 U.S, stores with the right merchandise, Amazon charges a fixed fee from third party sellers on its Amazon.com marketplace.

"Amazon delivers a significant amount of its total gross merchandise volume via third-party sellers," said Jason Benowitz, senior portfolio manager at The Roosevelt Investment Group.

"In this business, Amazon collects fees for third-party seller services that we believe are less dependent on the nature of the items sold," Benowitz said.

This also insulates Amazon from changes in consumer spending patterns and may have had a lesser impact on profitability compared to Walmart or other traditional retailers, he added.

Amazon shares rose 14%. Walmart lost about $28 billion in market value after its warning on Monday, and sparked a broad sell-off in other retail stocks on Tuesday.

(Reporting by Siddharth Cavale and Jeffrey Dastin; Editing by Nick Zieminski)

By Siddharth Cavale

© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM, INC. -2.72% 114.8 Delayed Quote.-31.14%
CHRISTIAN DIOR SE -0.42% 589.5 Real-time Quote.-19.25%
LVMH MOËT HENNESSY LOUIS VUITTON SE -0.85% 608 Real-time Quote.-16.37%
WALMART INC. -0.65% 132.25 Delayed Quote.-8.00%
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Financials (USD)
Sales 2022 522 B - -
Net income 2022 505 M - -
Net Debt 2022 25 179 M - -
P/E ratio 2022 3 478x
Yield 2022 -
Capitalization 1 170 B 1 170 B -
EV / Sales 2022 2,29x
EV / Sales 2023 1,94x
Nbr of Employees 1 608 000
Free-Float 85,8%
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Last Close Price 114,80 $
Average target price 173,36 $
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Andrew R. Jassy President, Chief Executive Officer & Director
Brian T. Olsavsky Chief Financial Officer & Senior Vice President
Jeffrey P. Bezos Executive Chairman
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