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Wal-Mart to Buy Stake in India's eCommerce Firm Flipkart

Zacks Equity Research
Updated

Wal-Mart Stores Inc. WMT is reportedly in talks to invest in India's largest eCommerce firm, Flipkart Online Services Pvt. Clearly, the retail giant aims to expand in the fast-growing online retail market and compete with the largest U.S. online retailer, Amazon.com, Inc. AMZN. As per sources, Wal-Mart, the biggest U.S. retailer seeks to invest between $750 million and $1 billion in Flipkart, though final terms of the deal are still under negotiation.

Founded in 2007, Flipkart is currently the largest online retailer in India. It sells products across multiple categories, including appliances, home and furniture, electronics and apparel. However, it is facing stiff competition from Amazon, which has been expanding rapidly in the South Asian country's fast-growing retail market in order to gain customers. In fact, Amazon’s CEO announced in June that it plans to spend another $3 billion in India.

Flipkart’s collaboration with Wal-Mart will thus be beneficial for both parties. Flipkart would get capital from Wal-Mart and a partner to compete with Amazon's ambitious investment plans in the country. On the other hand, Wal-Mart would get the opportunity to expand in the online space, compete with Amazon as well as gain access to the growing eCommerce market in India. Wal-Mart only operates wholesale stores in India. Wal-Mart and Flipkart could also leverage each other's expertise in retail and supply chains in India.

Apart from India, Wal-Mart is also expanding in China. In June, the retail giant agreed to sell its Chinese eCommerce business Yihaodian to local retailer, JD.com in exchange for a 5% equity stake in the latter. We note that JD.com is the second-largest online retailer in China after Alibaba Group Holding Ltd. BABA in terms of market cap. The deal with JD.com is expected to give Wal-Mart a better chance of competing in the cut-throat retail industry in China and expand its reach in the country.

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WAL-MART STORES Price and Consensus

 

WAL-MART STORES Price and Consensus | WAL-MART STORES Quote

It seems that Wal-Mart is leaving no stone unturned to acquire a stake in the online business. In this regard, the retailer continues to make huge investments in eCommerce initiatives, including acquisitions. Recently, Wal-Mart completed the acquisition of eCommerce company, Jet.com, Inc., which marked a huge step forward in its quest to dominate ecommerce king, Amazon.

Apart from acquisitions, the Bentonville, AR-based Wal-Mart has also launched its own mobile payment system called Walmart Pay. This allows shoppers to pay through its existing smartphone app. Last month, Wal-Mart inked an agreement with CommerceHub, a leading distributed commerce network for retailers and brands, to expand its existing partnership.

Wal-Mart has also partnered with ride hailing services, Uber and Lyft for speedy online grocery deliveries. Moreover, it intends to roll out drones in the near term for product deliveries to Wal-Mart facilities as well as to consumer homes.

Zacks Rank

Wal-Mart currently carries a Zacks Rank #3 (Hold).

A well-positioned retailer is The Children's Place, Inc. PLCE, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children’s Place has an average positive earnings surprise of 33.06% in the trailing four quarters. It also has a long term earnings growth rate of 10.33%.

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