Market watchers say Walmart should benefit from TikTok investment

While the deal for Oracle and Walmart to take a combined 20% stake in a U.S. based TikTok Global has not yet been approved, analysts are saying Walmart could be a winner by gaining access to data about a younger demographic.

Walmart’s investment would be about $4.5 billion at TikTok’s assumed $60 billion value. Walmart paid $3.3 billion for Jet.com in 2016 and about $16 billion for a majority stake (77%) of Flipkart in May 2018.

Headlines Monday were more about the vague structure of the new business entity known as TikTok Global, with Walmart would owning 7.5% stake and Oracle owning 12.5% with the balance to be owned by mostly American investors. The new board will be comprised of five Americans including Walmart CEO Doug McMillon.

“All the TikTok technology will be in possession of TikTok Global and comply with U.S. laws and privacy regulations. Data privacy for 100 million American TikTok users will be quickly established by moving all American data to Oracle’s Generation 2 Cloud data centers, the most secure cloud data centers in the world,” the companies said in their joint release on Saturday.

China’s officials had not yet approved the deal and President Donald Trump said he approved the deal in concept.

Alan Ellstrand, a professor at the University of Arkansas with corporate governance experience, said Oracle and Walmart seem to have a closer relationship with the White House and that could have made it more attractive to get U.S. approval. He also agreed that having Walmart at the table is likely a plus to get Chinese approval because the retailer works with Chinese companies as an active investor in JD.com, a growing e-commerce platform in China.

‘A SAVVY MOVE’
Ellstrand said TikTok has a wide user base but the golden nugget for Walmart and Oracle is the data-rich platform and insights that can be gleaned from the vast number of young users.

Alex Zurkin, an analyst with RBC Capital Markets, said data indicates the kind of usage and engagement TikTok is garnering is hard to match. He said Oracle’s $7.5 billion stake of the $60 billion TikTok today, could eventually be worth $100 billion to $200 billion. He said the deal also creates opportunities for Oracle to become a consumer player instead of being known as a cloud storage and data management enterprise for businesses. He also believes a relationship between Oracle, a company with no real retail products, and Walmart.

“Since Oracle does not have a commerce offering itself, nor does it have logistical capabilities, including Walmart is a savvy move, in our opinion,” he said.

The retailer is already using TikTok for advertising in two campaigns, according to Jenna Drenten, associate professor of marketing at Loyola University in Chicago. She said if Walmart has ownership in TikTok it may be able to direct more consumers to shop its website.

BLURRED LINES
Michael Lasser, a retail analyst with UBS, said the deal makes sense for Walmart for three reasons.

“First, the lines are blurring between physical commerce, digital commerce, and social media. And for Walmart to have some exposure to a digital media asset – to a social media asset that would give them more exposure to that trend – I think makes a lot of strategic sense,” Lasser noted.

“Two, the TikTok audience tends to skew much younger, which contrasts to the Walmart customer base, which is a little bit older. So having exposure to that younger audience would also be of strategic value to Walmart. And finally, there is a lot of data and information that Walmart would be able to glean as a result of seeing what trends are emerging in real-time. It could boost its website and really connect more deeply to those trends,” he added.

Brian Sozzi, a former retail analyst and now an editor-at-large at Yahoo! Finance, said Walmart will be able to monetize TikTok’s 100 million users. He said access to the data will give Walmart the ability to stay ahead of trends and plan their inventory accordingly. Sozzi said imagine making a TikTok video with your cat and when finished you get a coupon for cat food from Walmart.com.

Keith Anderson, a senior executive at e-commerce analytics firm Profitero, said Walmart’s biggest interest in this deal is to get ownership and influence over the highly influential form of visual content that drives purchases among younger shoppers. Carol Spieckerman, CEO of Spieckerman Retail, told Talk Business & Politics the TikTok deal would bolster Walmart’s media and content platform to better compete with Amazon.

“This is particularly relevant as Walmart tinkers with the value proposition for its Walmart+ offering. The potential to bundling content, possibly to include original programming, will round out Walmart’s media and advertising businesses and greatly enhance its relevance to third-party sellers and brands,” Spieckerman said.