Wal-Mart will acquire Jet.com in a bid to expand its e-commerce efforts
Wal-Mart Stores (NYSE: WMT) announced that it is acquiring Jet.com, a web retailer, and it signed a deal for $3.3 billion in stock and cash for the acquisition. The move comes as Wal-Mart's sales have weakened as e-commerce has greatly expanded versus brick-and-mortar store sales. Wal-Mart's acquisition demonstrates that the CEO finds it important to strengthen Wal-Mart's e-commerce presence as it faces existential threats from competitors such as Amazon.com (NASDAQ:AMZN).
Wal-Mart has its own e-commerce site, Walmart.com, which it started more than 15 years ago. Still, it has always focused on its core brick-and-mortar business, treating its e-commerce sales as secondary. The acquisition of Jet.com signals that Wal-Mart is refocusing how it views its e-commerce business, which may help to improve its overall profits and strengthen its sales.
Wal-Mart v. Amazon
Amazon has demonstrated explosive growth, and all signs point to it expanding even further. For its year-to-date figures, Amazon has increased by 14 percent. In its second quarter, Amazon reported earnings per share of $1.78. For that quarter, year-over-year net income was up by 900 percent from the same quarter in 2015. Amazon's foray into cloud computing has been a big driver for the company. Its revenue was up by 58 percent in the second quarter for its cloud-computing arm alone. Amazon Web Services reported a net income that was higher than Amazon's entire e-commerce business for last quarter.
In 2015, Wal-Mart had almost $14 billion in sales from its e-commerce business. By contrast, Amazon earned $107 billion during the same year. In the last quarter, Wal-Mart saw an increase in its e-commerce business of 7 percent. For the same quarter, Amazon saw an increase in its e-commerce business of 31 percent.
Conclusion: We're Cautious on WMT
Amazon continues to impress as it expands its profits via e-commerce as well as its cloud-computing services. Wal-Mart's sales have weakened. While its acquisition of Jet.com might help the company expand its e-commerce business, it will take some time for Wal-Mart to combine both Walmart.com and Jet.com's dual e-commerce platforms. By the time Wal-Mart is fully operational with its e-commerce business lines, Amazon may have expanded enough to where the market share available for Wal-Mart might be tight. We recommend that investors consider caution on purchasing shares of WMT in AMZN's enormous position.
As we noted in a prior Instablog post, additional points for AMZN surging further ahead of its rivals include the company's leading position in cloud computing, soaring prime subscriptions and surpassing even Exxon Mobil (NYSE:XOM) in size.
It is very difficult for smaller retailers (even those as large as Wal-Mart) to compete.
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