Walmart Inc.
WMT
has long been expediting efforts to boost its online business, given customers’ growing digital dependency. Of late, a lot has been brewing about this omnichannel retailer’s plans to acquire a stake in TikTok’s U.S. operations. To this end, Walmart unveiled on Sep 19 that it has tentatively agreed to buy a 7.5% stake in the newly created TikTok Global business, alongside entering into commercial deals to offer its solid e-commerce, payment and other omnichannel services to the latter.
In fact, President Trump announced on the same date that TikTok’s Chinese owner, ByteDance, has secured a tentative nod for a deal with the U.S. government. The deal includes Walmart, together with Oracle
ORCL
buying a 20% stake in TikTok Global.
Incidentally, TikTok is coming up with a new entity — TikTok Global — which will offer all TikTok services to American users as well as most users in other parts of the world. Based in the United States, TikTok Global will be an independent entity, with the major stake being held by American investors such as Walmart and Oracle. In fact, Oracle will become TikTok’s safe cloud provider per the deal, which has secured conditional approval.
We note that China’s TikTok has been considering the sale of its U.S. assets from the time it came under the government’s radar. Well, the company’s vast private data on U.S. consumers was considered a potential threat. Therefore, regulatory authorities have been putting pressure on TikTok to sell its U.S. wing. Per the latest deal, TikTok Global will control all of TikTok’s technology, and abide by the U.S. laws as well as privacy regulations. Notably, all American data will be shifted to Oracle’s secure Generation 2 Cloud data centers, which will help provide data privacy to around 100 million American users of TikTok.
As for Walmart, the company will offer its retail strength like robust assortment at Walmart.com, solid e-commerce marketplace, along with fulfillment, payment and advertising services, among others, to TikTok Global. Also, Walmart’s CEO Doug McMillon will serve as one of the five board members of the newly established entity.
TikTok’s integration of e-commerce and advertising capabilities has been effective in most markets. The application’s large user base could help Walmart expand its third-party marketplace and generate more ad-based revenues. The company is likely to benefit from the ’swipe to shop’ model, which is gaining popularity across many social media platforms. In fact, through TikTok, Walmart can reach out to the vast younger demography. Well, these aspects are likely to boost Walmart’s e-commerce presence and help it stay firm against the rising competition from Amazon
AMZN
.
Earlier, there were talks about Walmart teaming up with Microsoft
MSFT
to acquire TikTok’s U.S. operations, which however didn’t materialize. Nevertheless, the abovementioned deal with Oracle is likely to benefit the United States in a number of ways — creating job opportunities and coming up with new and innovative products. Also, TikTok Global is likely to have an Initial Public Offering (IPO) in the United States within the next year, which will further strengthen the U.S. ownership of the firm. However, the final deal will require the necessary government approvals.
Walmart Continues to Ace Digital Efforts
We note that Walmart has been lauded for its e-commerce related investments in recent years. Some of the well-known moves made in this regard include investments in Flipkart, Shopify, ShoeBuy, Moosejaw, Bonobos and Jet.com. Additionally, the company has been gaining from strong omnichannel capabilities such as buy online and pickup in store, curbside pickups and ship-from-store. In fact, the company’s e-commerce business is on a high amid the pandemic. This is well reflected in its second-quarter fiscal 2021 results, wherein the company’s U.S. e-commerce sales soared a whopping 97% with strength across all channels. Moreover, e-commerce sales drove comps by 600 basis points.
Thanks to such upsides, shares of the Zacks Rank #2 (Buy) company have rallied 11.1% in the past three months compared with the
industry
’s growth of 10.7%. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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