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Why Walmart Wants a Piece of TikTok

By Adam Levy – Aug 31, 2020 at 9:51AM

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Digging deeper shows the retail giant and the social media upstart have complementary pieces to help reach each other's long-term goals.

There's a new bidder in the running to acquire TikTok's U.S. operations following an executive order by President Donald Trump to potentially ban the app in the United States. Trump plans to shut down the video-sharing app on Sept. 20 if the Chinese-owned (and allegedly Chinese government-influenced) tech company ByteDance hasn't sold the business. Walmart (WMT -0.17%) sees an opportunity. It's partnering with Microsoft (MSFT -0.28%) to make a bid for the app.

Walmart investors might balk at the idea, but here's why Walmart management sees a lot of potential in owning a stake in the social media company.

Neon Walmart sign on store exterior.

Image source: Walmart.

A boost to some existing businesses

Like most social media platforms, TikTok is an ad-supported business. Walmart also has an advertising business. It sells digital advertisements on its website and in-store advertising. 

Giving consumer packaged goods companies another advertising surface for their products -- i.e., TikTok -- could be a valuable boost to its ability to sell ads. That said, Walmart sold its Vudu streaming video on demand product earlier this year, so it still has work to do in video advertising sales.

Walmart would also get access to TikTok's data, which it can use for its other digital advertising products. TikTok could be particularly valuable in bringing in younger shoppers to and understanding the products they're most interested in and their shopping habits.

Importantly, Walmart's shopper data may also give TikTok a boost. Walmart has ad tech that can take advantage of its shopper data. That data can be extremely valuable in targeting digital advertisements. More targeted ads are more valuable ads, and more valuable ads are more expensive for marketers. 

By sharing data between Walmart and TikTok, perhaps with the help of Microsoft's digital advertising technology as well, the company can find real synergies in its business right from the start.

Diving into social commerce

The long-term potential for TikTok looks something like ByteDance's Chinese version Douyin. Douyin has a lot of e-commerce features, providing tools to influencers to help them monetize their presence on the platform. Creators now have the ability to create a store within the Douyin app, which can make scrolling through the app feel like the virtual version of walking through a mall or marketplace.

TikTok started experimenting with e-commerce features in the U.S. last year. It's still well behind Douyin, but it's followed the road map of its sister app so far. Walmart can support a bigger push into commerce on TikTok, and it could be a prime beneficiary as well. Not only is it an opportunity for Walmart to sell more items directly to an audience that's underrepresented in its customer base, but it's also an opportunity to attract more third-party sellers.

Third-party sellers are a big piece of Walmart's online business and a key to making its operations profitable. For all of Walmart's online sales growth over the last few years, it's still losing lots of money. Last year, it reportedly lost $2 billion on its online operations.

Head of U.S. Marc Lore says commissions on third-party merchant sales combined with services like warehousing, fulfillment, and advertising will help offset losses from online grocery order delivery and next-day shipping on many of its low-margin items.

Walmart can bring a lot of value to TikTok. The tech company is already popular with 100 million active users in the U.S. Walmart brings new data and ad sales teams to support its fledgling advertising business, and it ought to accelerate the company's push into commerce. While investors might do a TikTok-video-worthy double-take at the news Walmart's bidding on the social media app, taking a tick to think through the synergies of the deal shows it makes sense.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Microsoft. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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