Walmart Stock Goes to India
Wal-Mart Stores, Inc. (NYSE:WMT) surprised investors earlier this year when it acquired the online retailer Jet.com, Inc. It was a massive acquisition that cost shareholders a ton of cash, but it was done to fuel Walmart stock (WMT).
More importantly, it was the first step toward challenging Amazon.com, Inc. (NASDAQ:AMZN).
Walmart has no choice but to fight Amazon. It’s their only option to keep WMT stock moving to the right and up, particularly in light of new shopping patterns. Consumers are buying more things online, which ends up hurting the prospects of Walmart stock. For the company to remain a global powerhouse, it needs to poach Amazon’s market share.
One way they’re trying to do that is by scooping up a minority stake in Flipkart. This online retailer is already going head-to-head with Amazon in one of the world’s biggest markets: India. (Source: “Walmart May Invest in India’s Largest E-Commerce Site Flipkart,” Fortune, September 28, 2016.)
Amazon is pouring tons of money into India. It sees the country as a goldmine for AMZN stock, but now Walmart is clued into the game. The company sees that India’s growing middle class has created an astounding level of opportunity, so they want to back Flipkart in its fight against Amazon.
For those who may be unfamiliar with Flipkart, it essentially does the same thing as Amazon, except it has been in India longer. And it was built by Indian businessmen who understand the country, who have local partnerships, and who already control a huge portion of the market.
In other words, Amazon is the underdog in India. By contrast, Flipkart is the market leader. Walmart wants to invest in them right now, so that it can reap huge returns on Flipkart ‘s eventual initial public offering (IPO). This investment could end up driving 75%, 100%, or even 150% gains in WMT stock.
But don’t take my word for it; just look at history.
Why WMT Stock Is Poised for Growth
Does the Amazon-Flipkart face-off remind you of anything? For me, it brings back memories of a young Alibaba Group Holding Ltd (NYSE:BABA). The Chinese competitor to Amazon conquered its native market before coming across to the West. By then, it was large enough to secure a spot on the New York Stock Exchange.
It was also the biggest IPO in history.
What I remember is that another company got rich off Alibaba’s success. That’s right; I’m talking about Yahoo! Inc. (NASDAQ:YHOO). The Internet giant bought a 15% stake in Alibaba for roughly $7.6 billion. That was in 2012. By the time Yahoo sold off its core assets to Verizon Communications Inc. (NYSE:VZ), Yahoo’s stake in Alibaba was worth approximately $32.0 billion.
Yahoo didn’t have anything to do with Alibaba’s day-to-day business. The two companies didn’t collaborate or actively try to fight Amazon. Just holding those shares of BABA stock led to a massive increase in the value of Yahoo stock. In fact, many commentators said Yahoo’s stake in Alibaba was its saving grace.
Here’s a look at Yahoo’s valuation before the Verizon acquisition.
It’s clear that the Alibaba stake stopped Yahoo’s share price from collapsing into nothingness.
Likewise, Walmart stock could skyrocket alongside Flipkart. It’s such a brilliant move. Some might say Walmart is spending too much money in trying to fight Amazon, but don’t listen to those folks. They are stuck in the past. Every ounce of data shows that online spending is shooting through the roof.
Here’s a chart from the Federal Reserve Bank of St. Louis:
The chart above shows a steady increase in the proportion of e-commerce sales relative to total sales. Even through the recession (the shaded grey area of the chart), we saw e-commerce become an essential part of American life. But since we’re talking about India, let’s take a look at that country’s data.
Here’s a chart of monthly active users for Amazon, Flipkart, and Snapdeal in India.
Although 2016 was a little slow, there is a clear upward trend which could benefit WMT stock. This kind of hands-off investment worked wonders for Yahoo stock, so I’m betting it could work for Walmart stock as well.