💵 Walmart, Amazon, and the minimum wage

Monday, February 22, 2021 by Robinhood Snacks | Disclosures
_Heavy cart, slim margin_

Heavy cart, slim margin

Last Week’s Market Moves
Dow Jones
31,494 (+0.11%)
S&P 500
3,910 (-0.71%)
13,874 (-1.57%)
$56,272 (+18.01%)

Hey Snackers,

Barely five months after unveiling its first 5G phone, Apple is already hiring engineers to work on 6G. Knowing Apple, "10G Plus Max Pro" job postings are probably next.

Stocks fell for the week on rising unemployment claims and inflation worries. The US 10-year Treasury yield crossed 1.3% for the first time since February 2020. Meanwhile: Bitcoin hit a $1T market cap for the first time ever.

1. Walmart raises wages for 425K employees, but it probably won't outdo Amazon

Hair oils are thriving... Walmart posted record sales of $152B last quarter, as we stocked up on groceries and #selfcare goodies. In 2020, Walmart filled 7X more online orders than in 2019 (curbside pickup FTW). But it's projecting slower growth this year, so the stock dipped after last week's earnings. What didn't dip: wages.

  • Walmart is raising wages for 425K workers, bumping its employee average to ~$15/hour (up from $14). But it's keeping its starting wage at $11.
  • Walmart = America's largest private employer. With the raises, about half of its 1.5M US workers will earn at least $15/hour.

Sounds familiar... The Biden admin is trying to raise the federal minimum wage to $15/hour by 2025 (from $7.25/hour). It's questionable whether that'll get through lawmakers. A Congressional study found that a $15 minimum wage would lift 1.3M Americans out of poverty. The same study found it may also leave 1.3M jobless because of higher labor costs. This month, Walmart CEO Doug McMillon met with Biden: McMillon supports raising the federal minimum wage, but hasn't yet endorsed a $15/hour minimum. Still...

  • Walmart has to compete with its peers for essential workers, especially in online-order fulfillment roles. That's why the raises are only for frontline associates.
  • Amazon (aka: Walmart's biggest rival) raised its US starting wage to $15 back in 2018, and has lobbied Congress for a $15 federal minimum. Target made $15 its starting wage for all workers in 2020. Why isn't Walmart doing the same?

Profit margin could be a factor... explaining Amazon's and Walmart's different stances on wages. Amazon's biz is mainly online, making it more cost-friendly than Walmart's (which includes 11K+ physical stores). Also: groceries make up more than half of Walmart's sales, and they're harder to profit from than tech. While broccoli has a slim profit margin, Amazon's AWS cloud is its biggest profit puppy. Walmart did more sales in 2020 than Amazon, but its profit was much smaller than Amazon's: on $520B in sales, Walmart made $15.2B in profit — on $386B in sales, Amazon made $21B in profit. Walmart's biz is more sensitive to wage increases, but it needs them to compete with the 'Zon.


You used to ping me on my cell phone... Cloud company Twilio helps other companies talk to customers (think: text notifications, emails, support calls). Twilio's 221K customers include Uber, Instacart, DoorDash, and Netflix (all those password reset emails). It's a good time to be in remote comms: Twilio shares jumped after it reported expectation-crushing earnings on Wednesday (feat. a surprise adjusted profit). Both sales and customer growth accelerated from the previous quarter, and revenue jumped 65% from 2019.

The Tractor Factor... John Deere stock soared to a fresh record last week on killer earnings. Last quarter, Deere's profit more than doubled from 2020 as farming and construction perked up. Sales popped 23%, partly thanks to an efficient new operating strategy. The construction icon could benefit from President Biden's "Build Back Better" plan, which pledges to mobilize American manufacturing for a modern infrastructure (think: roads, bridges, buildings). Deere boosted its forecast for 2021, expecting greener pastures ahead.


Homeland's favorite stock... Palantir is the secretive software company that crunches data for big clients like intelligence agencies. Since going public in October, Palantir has been a little less mysterious (at least, its finances have): shares plunged 9% for the week after Palantir reported a $148M loss for last quarter — and $1.2B for the full year. Still, average revenue per customer was a whopping $7.9M last year. 2020 sales beat expectations, as Palantir won contracts with the US Army, the Air Force, and the FDA (and they probably didn't even get a free trial).

Up, in a bad way... US jobless claims hit a four-week high of 861K for the week ended February 13th, rising for the second week straight. Despite a steady drop in Covid cases as vaccines roll out, ~10M Americans are still unemployed. And the pace of recovery is slowing: in January, the US economy added just 49K jobs. Investors are looking forward to more help from Uncle Sam. Dems are on track to (narrowly) pass President Biden’s $1.9T stimulus package, which includes boosted unemployment aid and $1.4K payments to most Americans.

What else we’re Snackin’
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While the fridge is Truly stocked, the stock is truly poppin'...

Sam Adams maker Boston Beer is riding the spiked seltzer wave, while other big beer brands remain flat. The stock has nearly tripled this year thanks to Truly hard lemonade and seltzer.

Tune in to hear why Boston Beer needs a new name: "Boston Bev."

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This Week
  • Monday: Earnings expected from Palo Alto Networks
  • Tuesday: Earnings expected from Square and Home Depot
  • Wednesday: Earnings expected from Lowe's
  • Thursday: Weekly jobless claims. Earnings expected from Best Buy, Domino's, Wayfair, and HP
  • Friday: Earnings expected from Foot Locker

Authors of this Snacks own shares of: Walmart and Amazon

ID: 1533596