Wal-Mart Stores, Inc. (WMT): Why Amazon.com, Inc. (AMZN) Will Become the Biggest Retailer Ever?

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Jeff Bezos started Amazon.com, Inc. (NASDAQ:AMZN) in his garage in 1995 as an online bookstore, something no one else was doing at the time. Since then the company has experienced amazing growth. Amazon.com, Inc. (NASDAQ:AMZN) may not yet have the scale that Wal-Mart Stores, Inc. (NYSE:WMT) has as the world’s largest retailer with more than $400 billion in annual global sales, but can we look for Amazon to catch up and even surpass Wal-Mart Stores, Inc. (NYSE:WMT)?

Amazon.com, Inc. (NASDAQ:AMZN)It’s About the Rate of Growth
Last quarter, Wal-Mart Stores, Inc. (NYSE:WMT) had nearly $117 billion in earnings and Amazon.com, Inc. (NASDAQ:AMZN) had $15.7 billion. There really doesn’t seem to be any comparison between the two. But if you take into consideration the fact that Amazon’s growth rate since 2004 has been nothing short of phenomenal, you’ll understand why I believe Amazon will become the biggest retailer. Every quarter they’ve experienced an increase in revenue. Amazon.com, Inc. (NASDAQ:AMZN)’s quarterly revenue is up 1,280% since 2004, while Wal-Mart Stores, Inc. (NYSE:WMT) is only up 85% since then.

Amazon’s annual rate of growth for the past 10 years has been fairly consistent, 33%, 31%, 23%, 26%, 39%, 29%, 40%, 41% and last year 27%. The first quarter of 2013 came in lower, only 22%, however active users grew 19% and user engagement is holding steady. In 2012, Amazon’s net retail sales were $51.7 billion, or 6% of the $1 trillion global e-commerce market.

If Amazon continues to grow at an average annual rate of 32%, as it has been, then in five years the company would reach $207 billion in revenue. In seven years it would reach $306 billion. And by 2021 Amazon would be closing $475 billion in sales, surpassing Wal-Mart Stores, Inc. (NYSE:WMT).

How Realistic is This Prediction?
predicts the e-commerce industry will reach $1.86 trillion in volume by 2016. If the annual growth rate continues steady at 5%, the industry would reach $2.4 trillion in volume by 2021. For Amazon.com, Inc. (NASDAQ:AMZN) to reach $475 billion in revenue by 2021 it would need to own 19.7% of the total market.

There’s every reason to believe this is feasible. Although Amazon has only 6% of the e-commerce market currently, the company is growing at a speed that surpasses most of its e-commerce competitors. 

The e-commerce industry has low barriers to entry. All a company needs is a website and the ability to drive traffic to it. However, in reality very few can hope to compete with Amazon. According to Morningstar, Amazon already makes more money than the combined revenue of its nine closest competitors, excluding eBay. More importantly, Amazon.com, Inc. (NASDAQ:AMZN) is currently selling in only twelve countries including the U.S. and Canada. So there is tremendous opportunity for growth as Amazon expands its global reach.

Wal-Mart Won’t Catch Up
Amazon is more than just an online retailer. The company has been very successful diversifying into completely different industries. One example would be Amazon Web Services (AWS). Ben Schachter, an analyst at Macquarie Capital, estimates AWS will top $3.8 billion in revenue this year. He values the whole server farm at $19 billion. AWS is currently making low returns in the short term while it develops strong business relationships with the majority of IT companies. This strategy will pay off in the long term. To get started with AWS a developer receives 750 hours free usage. We will discuss Amazon’s success with the Kindle and Amazon Prime Services in another article. Stay tuned!

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