Company / Analytics

Analytics, 22 September 2020

TikTok deal: are Walmart and Oracle winning?

The TikTok sale saga reached an apparent conclusion over the weekend when President Trump approved a tentative deal allowing Oracle Corp. and Walmart Inc. to buy a minority stake in a new joint entity, called TikTok Global. Though uncertainty remained around the deal, shares of Walmart and Oracle surged on Monday. We look at the potential impact of the partnership on the long-term outlook for Oracle and Walmart.

The Deal

App usage has been skyrocketing in 2020 and TikTok has been a major player in this rise. TikTok’s ability to operate within the US has been in doubt following rising tensions between Washington and Beijing. The US Department of Commerce had prepared to levy sanctions against ByteDance, the company that owns the video-sharing App on Friday but delayed the action after President Trump gave the deal an informal approval over the weekend.

TikTok had filed a lawsuit against the Department which was voluntarily dismissed in the wake of that extension while President Trump was expected to formally withdraw the executive orders blocking the app later this week.

A deal that would resolve the impasse appears to be reaching after the White House approved a tentative deal that restructures ownership of the App, and guarantees its operations in the US.

Oracle-Walmart form TikTok Global

Tech company Oracle and Walmart have partnered to form a new entity named TikTok Global to save the hugely popular app. According to a report from Bloomberg, the preliminary deal will see Oracle take a 12.5% stake in the new TikTok Global company, while Walmart will buy 7.5% of the entity. Oracle will host all U.S. data and focus on user privacy and security.

According to estimates, TikTok’s U.S. business is valued anywhere from $20 billion to $50 billion, a wide range that reflects the complexity involved in separating TikTok’s American and global businesses, in determining a reliable number of users, and how revenue breaks out just for the markets at stake in the deal. TikTok Global’s business will likely include markets such as Canada, Australia, and New Zealand.

Initial Public Offering Of TikTok: TikTok Global will have an initial public offering in less than 12 months and the IPO will list on a U.S. Exchange. It is expected that after the IPO, U.S. ownership of TikTok Global will increase and continue to grow over time, Oracle and Walmart’s statement said.

What the deal means for Oracle?

ByteDance had earlier this month rejected a plan by Microsoft to buy the US arm of TikTok, which cleared the way for Oracle. Oracle’s involvement was likely influenced by a recent decision by video meeting software Zoom to use Oracle cloud infrastructure. Oracle’s surprise win in that deal over more familiar names such as Amazon Web Services was a public relations boon for the company.

Analysts say Oracle’s cloud computing business will receive a major boost as a result of the deal. In the deal, Oracle will host all of TikTok’s U.S. user data, and it also plans to safeguard TikTok’s computer systems to satisfy U.S. national security requirements.

How did Oracle stock move?

Analysts have raised their price target on Oracle following the deal. On Monday, the stock climbed 1.8%, closing at 60.82. Earlier in the day, shares were up 4.5%. The current consensus among 30 polled investment analysts is to Hold stock in Oracle Corp, according to CNN Business.

What does the deal mean for Walmart?

Walmart was an unexpected contender for the TikTok Global partnership, but it makes sense: access to the TikTok user base opens significant marketing opportunities for Walmart to benefit from a large, younger audience.

Walmart already uses TikTok as a market research tool. For example, Walmart recently released a hot holiday toy list. To help discover what might be popular this holiday season, its buyers turned to TikTok for inspiration.

TikTok is hugely popular in the U.S., with a strong growth trajectory and fan following — mostly among teens and twenty-somethings. More than 100 million Americans are monthly active users. That represents a growth of nearly 800% since January 2018 when the application was used by about 11 million Americans. And it’s used frequently by its fans: More than 50 million people in the U.S. use it every day, the company said.

Walmart, by comparison, has an estimated 1.5 million to 2 million daily purchasers in the U.S, according to a recent research note by Credit Suisse.

In the past, Walmart’s $3.3 billion acquisition of online delivery start-up Jet.com, set the retailer on a path for e-commerce growth, and its $16 billion acquisition of the majority of Indian start-up Flipkart broke it into a new marketplace and provided insights that it could use in the U.S.

Walmart is likely to become the e-commerce backend for TikTok Global’s business. For example, that would mean if an influencer promotes a new L’Oreal product via live stream, the associated link would direct them to buy it on Walmart.com. However, Walmart’s relationship with TikTok comes with risks. The deal means that Walmart could be subject to additional government oversight. It could link Walmart’s brand to TikTok’s actions, such as a potential data breach or a controversial action. And it could face backlash if TikTok’s content or its approach to advertising seems to lean to the right or left politically.

How did Walmart stock move?

Walmart stock rose 1.3%, to 137.07 on Monday. The current consensus among 34 polled investment analysts is to Buy stock in Walmart Inc., according to CNN Business.

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