E-Commerce Is Fluid and Walmart Appears Undervalued

E-Commerce Is Fluid and Walmart Appears Undervalued

We spent much of last week collecting e-commerce and payments-related data. That long-form TEK2day report is on the back burner for now. In the interim we share our general thoughts on e-commerce and one retail giant in particular.

The retail space is having difficulty overcoming COVID having suffered record bankruptcies. Brooks Brothers is the latest casualty to be reported in the business press but there are countless other stories that go unreported. Therefore, while COVID is shifting more retail activity online, many retailers are permanently closed for business. Retail bankruptcies will continue for many months and offset a portion of the mix shift to e-commerce. While many investors are thrilled that companies such as Square (ticker: SQ), Intuit (ticker: INTU) and PayPal (ticker: PYPL), will benefit from participating in the execution of PPP, investors would be wise to keep the bankruptcy headwind in mind.

Two companies that ought to largely power through COVID include Amazon (ticker: AMZN) and Walmart (ticker: WMT). We recently wrote about Amazon’s massive COVID investment of $4 billion-plus which may result in a second AWS-like opportunity. In terms of Walmart, the Bentonville, AR retail juggernaut has quietly assembled a formidable e-commerce business with LTM revenue of $41 billion (8% of total LTM revenues). In the tables below we have comped Walmart’s e-commerce business to online furniture retailer Wayfair (ticker: W), to get a sense as to what WMT’s e-commerce business may be valued as a standalone operation (WMT e-commerce is larger and growing faster than Wayfair). Our math suggests Walmart shares may be 30-50% under-valued.

Reach me at jmaietta@tek2day.com to request the Excel version of any of the below tables (click the images below to expand or download in .PNG format). Subscribe to access TEK2day premium content.

Walmart generated $41.2 billion of e-commerce revenue over the last 12 reported months (“LTM”), a 46% revenue growth rate. Click image to expand or download.

We used Wayfair (ticker: W) as a comp to Walmart’s e-commerce business. Applying a similar EV/Revenue multiple to Walmart’s e-commerce business implies an Enterprise Value range of approximately $90-125 billion. Walmart’s e-commerce business is larger and growing faster than Wayfair. Click image to expand or download.

We applied various EV/revenue multiples to Walmart’s e-commerce business and the “Rest of WMT” to get a sense of potential valuation upside. From our perspective, WMT shares are probably 30-50% undervalued. WMT’s executive management ought to report e-commerce revenue as a separate line item when filing 8-K financial results. Further, WMT’s healthcare business is under-appreciated and therefore under-valued. The healthcare business ought to be separately reported each quarter. Executive management ought to be more out front promoting these two businesses as there is sufficient data and qualitative information to cover which is favorable to Walmart. Our analysis does not include Walmart’s future Amazon Prime competitive offering – “Walmart+” – which launches in July. Walmart+ will cost $98 per year and will include same day delivery of groceries, fuel discounts and more. Click image to expand or download.