This is why Walmart wants to acquire TikTok

(MarketWatch) – Walmart Inc. says a deal for TikTok could potentially benefit the retail giant’s e-commerce, marketplace and advertising businesses.

Walmart WMT, +2.68% shares jumped 4.5% on Thursday after it was revealed that the retailer is teaming up with Microsoft Corp. MSFT, +1.02% on a bid for the video sharing site.

“The way TikTok has integrated e-commerce and advertising capabilities in other markets is a clear benefit to creators and users in those markets,” the company said in a statement.

“We believe a potential relationship with TikTok U.S. in partnership with Microsoft could add this key functionality and provide Walmart with an important way for us to reach and serve omnichannel customers as well as grow our third-party marketplace and advertising businesses. We are confident that a Walmart and Microsoft partnership would meet both the expectations of U.S. TikTok users while satisfying the concerns of U.S. government regulators.”

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Walmart reported e-commerce sales that nearly doubled in the most recent quarter, up 97%.

Walmart’s advertising arm, Walmart Media Group, offers clients the chance to reach Walmart’s customer base across the website, on social media and elsewhere.

On its face, it may not make sense that Walmart, which sells groceries, home goods and other essential items, would want a website known for things like viral dance videos. But analysts and experts say it could help the retail giant make even bigger gains with shoppers and against its biggest competitor, Inc. AMZN, +0.05% .

“Operationally, Walmart’s systems and logistics are advanced, and it has the capital and know-how to become a much more serious competitor to Amazon,” said Neil Saunders, managing director of GlobalData Retail.

“However, the main challenge lies in expanding the customer base and the number of users who regularly visit the Walmart website and its marketplace site to buy goods.”

Moreover, it would provide Walmart with customer data, something that retailers across the spectrum of the industry are busy gathering in order to improve their customer service and their sales.

“Having a serious stake in the world of social media would not only allow Walmart to bolster its marketing efforts, it would also give it access to a rich stream of data that would help it target shoppers more effectively in terms of building campaigns, product development, and a whole host of other activities,” Saunders said.

“Over time, the platform could also become a significant channel through which Walmart could directly generate sales.”

Partnering with Microsoft would also help Walmart manage a new technology business.

One area where Walmart doesn’t need help is with its brick-and-mortar store locations. The company has 11,500 around the world, according to its most recent earnings, with thousands in the U.S. This gives Walmart an advantage against Amazon.

“Walmart is sitting on a gold mine of data on its in-store experience (think about the customers who come to them for optics care, their pharmaceutical needs, and weekly groceries),” said Gregory Ng, CEO of web optimization consultancy Brooks Bell.

“Knowing how often you buy a gallon of milk, which kind and when, is incredibly valuable info as a retailer. Combine that with its e-commerce business and it’s ahead of the curve.”

Enhancing its digital capabilities would give Walmart an advantage against Amazon.

“Walmart needs to get to Amazon’s level of customer centricity through knowledge of testing and optimizing its e-commerce platform,” Ng said. “The big-box retailer needs to create a platform where they’re constantly learning, personalizing and innovating.”

Chinese-owned TikTok has been under pressure to sell its U.S. operations, with President Donald Trump raising the specter of TikTok as a potential threat to national security.

Microsoft and Oracle Corp. ORCL, +1.22% have been named as prospective buyers.

CNBC reports that TikTok is close to selling operations in the U.S., Canada, Australia and New Zealand, in a deal that could reach $30 billion. TikTok’s Chief Executive Kevin Mayer has resigned amid the discussions.

Walmart stock has gained 18% for the year to date. Microsoft stock is up 45.1%. And the Dow Jones Industrial Average DJIA, +0.56% has edged up 0.6% for the period.

Tonya Garcia
Tonya Garcia is a MarketWatch reporter covering retail and consumer-oriented companies.


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