Growing digital dependency has led social media to become entwinned with traditional and online shopping platforms. Consequently, retailers like Walmart Inc. WMT have been looking to make use of such opportunities to ramp-up online revenues. Reportedly, the omnichannel behemoth is teaming up with Microsoft MSFT in a bid to acquire the U.S. operations of TikTok. Walmart’s shares climbed up nearly 5% on Aug 27, on hopes that this potential three-way partnership could be a winning combination in the long-run.
Industry experts believe that this puts Walmart in line with another potential suitor — Oracle ORCL — for winning over the popular short-form video application’s business in the United States.
China’s ByteDance owned company, TikTok, has been considering 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 is considered a potential threat. Therefore, regulatory authorities have been putting pressure on TikTok to sell its U.S. wing.
Walmart expects that the deal, in partnership with Mircrosoft, would satisfy government concerns as well as meet expectations of U.S.-based TikTok users.
TikTok – a Worthwhile Ace in the Stack
TikTok’s integration of e-commerce and advertising capabilities has been effective in most markets. The application’s large user base could help Walmart in expanding its third-party marketplace as well as generate more ad-based revenue. 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, as it continues to battle the retail giant Amazon AMZN.
Industry experts point out that Walmart’s move to chip into TikTok along with a strong ally from the technology sector is an upside. Moreover, Walmart and Microsoft have been in partnership for a while now. Walmart makes use of Microsoft’s Azure and 365 software across its business platforms. The companies have also worked on projects focused on artificial intelligence, machine learning and data platforms.
We note that Walmart has been lauded for its e-commerce related investments in the 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. The company’s U.S. e-commerce sales soared a whopping 97% with strength across all channels, in the said quarter. Moreover, e-commerce sales drove comps by 600 basis points.
If the three-way deal materializes, it would certainly boost Walmart’s digital business. That said, we expect that a decision regarding TikTok’s U.S. operations will be made soon.
Walmart currently carries a Zacks Rank #3 (Hold). Shares of the company have increased 10.5% in the past three months compared with the industry’s growth of 6.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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