Wal-Mart is Fumbling Online but Still Worth $73

August 3rd, 2011 by Trefis Team
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WMT: Walmart logo
WMT
Walmart

Wal-Mart (NYSE:WMT) is stumbling to get its online business going. We estimate that Wal-Mart’s intrinsic value is around $250 billion ($73/ share) while Amazon is worth close to $110 billion, yet Wal-Mart’s online sales in 2010 brought in less than $10 billion vs. around $34 billion for Amazon. [1] Compete.com also indicates that Amazon draws close to 80 million unique visitors a month compared to Wal-Mart’s 46 million. So when it comes to online retailing, Amazon and others are running laps around Wal-Mart. Other competitors like Target (NYSE:TGT), Costco (NASDAQ:COST) and Amazon (NASDAQ:AMZN) are looking to level the playing field by beefing up their online presence, which could add up over time as more spending shifts online and put a dent in our valuation that implies 40% upside for Wal-Mart.

Wal-Mart’s Progress Hasn’t Been Impressive so Far

Walmart.com stumbled early on from a poor user experience and offers limited personalization and recommendations, which companies like Netflix and Amazon use to drive sales and higher engagement. Its product offerings are not as broad as other online retailers. For instance, in digital camcorders, Amazon offers over 2,000 varieties whereas Walmart.com’s offers 96, according to a report from Wells Fargo Securities. The same is true for most electronics when compared to either Amazon or Best Buy.

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In an attempt to turn this around, Wal-Mart last year created a business unit called Global.com, which is designed to drive growth internationally. The goal is to create a single online platform where users can buy from any market similar to Amazon’s platform. This will undoubtedly be more logistically complicated for Wal-Mart that has operations spanning the globe. Moreover, the company is increasingly dependent on its international business, an item we discussed in a recent note titled Wal-Mart Rides to $73 on International Growth.

There is tremendous value to unlock if Wal-Mart can build a platform to connect its dispersed users from various markets. While we believe that recent efforts are moving in the right direction, it looks like it will take some time for online sales to really move the needle for the retail giant.

See our complete analysis for Wal-Mart

Notes:
  1. See: Walmart struggles to shift from bricks to clicks, SFGate [↩]