Amazon.com, Inc. (NASDAQ:AMZN) reported a loss in the second quarter that surprised Wall Street. The company continues to invest at the expense of profits, with the promise that earnings will come once the spending stops. However, with stiff competition on multiple fronts, can Amazon.com, Inc. (NASDAQ:AMZN) ever stop spending on growth?
As an investor, that’s an important question to ask yourself. Amazon.com, Inc. (NASDAQ:AMZN) has become so much more than just a book retailer. For example, it sells far more than books, putting it in competition with virtually all retailers, including industry giant Wal-Mart Stores, Inc. (NYSE:WMT). It has moved into cloud computing, pitting it against companies like Microsoft Corporation (NASDAQ:MSFT). And it has a streaming service that goes up against rapidly growing Netflix, Inc. (NASDAQ:NFLX). And those are just single examples; Amazon.com, Inc. (NASDAQ:AMZN) faces multiple players in each space.
Distribution is one of the areas in which Amazon has been spending heavily. It wants to get products to customers in two days or less. That’s an enviable goal, but one that requires a huge warehouse build out. Wal-Mart Stores, Inc. (NYSE:WMT), meanwhile, is examining using its store network to fulfill online orders.
That should send a chill down Amazon.com, Inc. (NASDAQ:AMZN)’s spine, since Wal-Mart Stores, Inc. (NYSE:WMT) has over 3,700 super centers and discount stores dotting the nation. If speed of delivery is truly an important metric, the right technology could quickly make Wal-Mart Stores, Inc. (NYSE:WMT) the king.
Wal-Mart Stores, Inc. (NYSE:WMT)’s sales have grown every year for the past decade. And unlike Amazon.com, Inc. (NASDAQ:AMZN), the company’s bottom-line has grown every year, too. For investors looking at retail, inclusive of online, Wal-Mart Stores, Inc. (NYSE:WMT) is probably a better option.
The shares trade with a price to earnings ratio of about 16, while Amazon is losing money. If you use analyst estimates to compute a forward PE, Amazon is trading for about five times the valuation being afforded to Wal-Mart. Although Wal-Mart’s shares have recovered nicely this year, they still look like a better option. And investors will also benefit from a dividend yield of around 2.4%.
Amazon is also one of the big players in the cloud computing space. It had been differentiating itself on price. Microsoft Corporation (NASDAQ:MSFT), however, lowered its prices to compete specifically with Amazon. And Microsoft Corporation (NASDAQ:MSFT) has a suite of software and services that customers are used to using and that work well with its cloud offering, Azure. That puts Amazon on the defensive here, too.
Microsoft Corporation (NASDAQ:MSFT) shares have a PE of about 13, a yield of around 2.9%, and a top-line that has grown over the last four years. Like Wal-Mart, Microsoft Corporation (NASDAQ:MSFT) has rewarded shareholders with annual dividend increases for a decade. Although Microsoft Corporation (NASDAQ:MSFT) has also been investing in growth initiatives, pushing earnings lower in fiscal 2012, it’s soundly profitable. Earnings jumped from $2 a share to about $2.60 in fiscal 2013.
Although still up for the year, Microsoft shares have sold off recently on weak sales of its Surface tablet. That’s a new business for the company, but it ties in with the goal of creating a Windows ecosystem. That’s probably got more staying power than Wall Street is giving the company credit for. If investing for the future is important to you, it’s probably better to stick to a company that can invest and still make money along the way.
Amazon’s Kindle has increasingly turned into a tablet computer. That pits it against Apple’s iPad and Microsoft’s Surface, among many others. However, the real reason that Amazon has been able to hold its own in the tablet space is the close connection between its content offerings and its device. Increasingly, however, that means pumping up video.