Question

Continuing Company Analysis—Amazon and Walmart: Earnings per share

Amazon.com, Inc. is one of the largest Internet retailers in the world. Walmart is the largest retailer in the United States. Amazon and Walmart compete in similar markets; however, Walmart sells through both traditional retail stores and the Internet, while Amazon sells only through the Internet. Earnings and common stock outstanding information was obtained from recent financial statements for both companies as follows (in millions):

		Amazon		Walmart
Net income (loss)		$(241)		$16,363
Average number of common shares outstanding		462		3,230

a. Determine the earnings per share for each company. Neither company had preferred stock outstanding. Round your answers to two decimal places.

Amazon		$
Walmart		$

b. Which company appears more profitable from an earnings-per-share perspective?

Walmart

c. The market price of Amazon common stock was $437 per share at a time when Walmart’s was $72 per share. How would you explain this difference in market price given the earnings per share computed in (a) for both companies?

Market prices are also based on the future growth prospects of the company.

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Answer 1

a

Earnings per share = Net income (loss)/Average number of common shares outstanding

Amazon	(0.52)	=241/462
Walmart	5.07	=16363/3230

b

Walmart appears more profitable from an earnings-per-share perspective

c

Market prices are also based on the future growth prospects of the company.

The market price of Amazon is higher as it has better growth prospects in future.